UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2020March 31, 2021
OR
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☐�� | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-14875
FTI CONSULTING, INC.INC.
(Exact Name of Registrant as Specified in its Charter)
| | | | | | | | | | | |
Maryland | | | 52-1261113 |
(State or Other Jurisdiction of Incorporation or Organization) | | | (I.R.S. Employer Identification No.) |
| | | |
Maryland | | | 52-1261113 |
(State or Other Jurisdiction of
Incorporation or Organization)
| | | (I.R.S. Employer
Identification No.)
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555 12th Street NW | |
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Washington, |
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DC | | | 20004 |
(Address of Principal Executive Offices) | | | (Zip Code) |
(202) (202) 312-9100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading Symbol | | Name of each exchange on which registered |
Common Stock, $0.01 par value | | FCN | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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Class | Outstanding at July 23, 2020April 22, 2021 |
Common Stock, $0.01 par value | 36,594,84234,221,273 |
FTI CONSULTING, INC. AND SUBSIDIARIES
INDEX
PART I—FINANCIAL INFORMATION
FTI Consulting, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
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| | | | |
Item 1. | Financial Statements |
| | | June 30, | | December 31, | | March 31, | | December 31, |
| 2020 | | 2019 | | 2021 | | 2020 |
| (Unaudited) | | | | (Unaudited) | | |
Assets | | | | Assets | | |
Current assets | |
| | |
| Current assets | | | |
Cash and cash equivalents | $ | 304,206 |
| | $ | 369,373 |
| Cash and cash equivalents | $ | 233,421 | | | $ | 294,953 | |
Accounts receivable: | | | | |
Billed receivables | 578,722 |
| | 540,584 |
| |
Unbilled receivables | 435,234 |
| | 418,288 |
| |
Allowance for doubtful accounts and unbilled services | (299,038 | ) | | (265,500 | ) | |
| Accounts receivable, net | 714,918 |
| | 693,372 |
| Accounts receivable, net | 798,516 | | | 711,357 | |
Current portion of notes receivable | 32,279 |
| | 35,106 |
| Current portion of notes receivable | 35,540 | | | 35,253 | |
Prepaid expenses and other current assets | 75,938 |
| | 80,810 |
| Prepaid expenses and other current assets | 83,672 | | | 88,144 | |
Total current assets | 1,127,341 |
| | 1,178,661 |
| Total current assets | 1,151,149 | | | 1,129,707 | |
Property and equipment, net | 91,753 |
| | 93,672 |
| Property and equipment, net | 100,686 | | | 101,642 | |
Operating lease assets | 152,245 |
| | 159,777 |
| Operating lease assets | 148,322 | | | 156,645 | |
Goodwill | 1,196,162 |
| | 1,202,767 |
| Goodwill | 1,233,292 | | | 1,234,879 | |
Other intangible assets, net | 33,588 |
| | 38,432 |
| |
Intangible assets, net | | Intangible assets, net | 38,172 | | | 41,550 | |
Notes receivable, net | 64,646 |
| | 69,033 |
| Notes receivable, net | 59,049 | | | 61,121 | |
Other assets | 39,172 |
| | 40,800 |
| Other assets | 47,530 | | | 51,819 | |
Total assets | $ | 2,704,907 |
| | $ | 2,783,142 |
| Total assets | $ | 2,778,200 | | | $ | 2,777,363 | |
Liabilities and Stockholders' Equity | | | | Liabilities and Stockholders' Equity | | | |
Current liabilities | | | | Current liabilities | |
Accounts payable, accrued expenses and other | $ | 163,162 |
| | $ | 158,936 |
| Accounts payable, accrued expenses and other | $ | 167,818 | | | $ | 170,066 | |
Accrued compensation | 314,018 |
| | 416,903 |
| Accrued compensation | 285,528 | | | 455,933 | |
Billings in excess of services provided | 40,288 |
| | 36,698 |
| Billings in excess of services provided | 42,432 | | | 44,172 | |
| Total current liabilities | 517,468 |
| | 612,537 |
| Total current liabilities | 495,778 | | | 670,171 | |
Long-term debt, net | 315,808 |
| | 275,609 |
| Long-term debt, net | 458,840 | | | 286,131 | |
Noncurrent operating lease liabilities | 161,753 |
| | 176,378 |
| Noncurrent operating lease liabilities | 153,376 | | | 161,677 | |
Deferred income taxes | 155,293 |
| | 151,352 |
| Deferred income taxes | 157,861 | | | 158,342 | |
Other liabilities | 75,482 |
| | 78,124 |
| Other liabilities | 95,995 | | | 100,861 | |
Total liabilities | 1,225,804 |
| | 1,294,000 |
| Total liabilities | 1,361,850 | | | 1,377,182 | |
Commitments and contingent liabilities (Note 10) |
|
| |
|
| |
Commitments and contingencies (Note 10) | | Commitments and contingencies (Note 10) | 0 | | 0 |
Stockholders' equity | | | | Stockholders' equity | |
Preferred stock, $0.01 par value; shares authorized — 5,000; none outstanding | — |
| | — |
| |
Common stock, $0.01 par value; shares authorized — 75,000; shares issued and outstanding — 36,710 (2020) and 37,390 (2019) | 367 |
| | 374 |
| |
Preferred stock, $0.01 par value; shares authorized — 5,000; NaN outstanding | | Preferred stock, $0.01 par value; shares authorized — 5,000; NaN outstanding | 0 | | | 0 | |
Common stock, $0.01 par value; shares authorized — 75,000; shares issued and outstanding — 34,228 (2021) and 34,481 (2020) | | Common stock, $0.01 par value; shares authorized — 75,000; shares issued and outstanding — 34,228 (2021) and 34,481 (2020) | 342 | | | 345 | |
Additional paid-in capital | 122,743 |
| | 216,162 |
| Additional paid-in capital | 0 | | | 0 | |
Retained earnings | 1,518,374 |
| | 1,413,453 |
| Retained earnings | 1,527,685 | | | 1,506,271 | |
Accumulated other comprehensive loss | (162,381 | ) | | (140,847 | ) | Accumulated other comprehensive loss | (111,677) | | | (106,435) | |
Total stockholders' equity | 1,479,103 |
| | 1,489,142 |
| Total stockholders' equity | 1,416,350 | | | 1,400,181 | |
Total liabilities and stockholders' equity | $ | 2,704,907 |
| | $ | 2,783,142 |
| Total liabilities and stockholders' equity | $ | 2,778,200 | | | $ | 2,777,363 | |
See accompanying notes to condensed consolidated financial statements
FTI Consulting, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(in thousands, except per share data)
(Unaudited)
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | | Three Months Ended March 31, |
| 2020 | | 2019 | | 2020 | | 2019 | | | 2021 | | 2020 |
Revenues | $ | 607,852 |
| | $ | 606,119 |
| | $ | 1,212,445 |
| | $ | 1,157,393 |
| Revenues | | $ | 686,277 | | | $ | 604,593 | |
Operating expenses | | | | | | | | Operating expenses | | | | |
Direct cost of revenues | 413,011 |
| | 386,266 |
| | 815,258 |
| | 735,332 |
| Direct cost of revenues | | 468,424 | | | 402,247 | |
Selling, general and administrative expenses | 126,928 |
| | 129,906 |
| | 253,887 |
| | 243,091 |
| Selling, general and administrative expenses | | 126,546 | | | 126,959 | |
Amortization of other intangible assets | 2,314 |
| | 1,852 |
| | 4,645 |
| | 3,713 |
| |
| Amortization of intangible assets | | Amortization of intangible assets | | 2,801 | | | 2,331 | |
| 542,253 |
| | 518,024 |
| | 1,073,790 |
| | 982,136 |
| | | 597,771 | | | 531,537 | |
Operating income | 65,599 |
| | 88,095 |
| | 138,655 |
| | 175,257 |
| Operating income | | 88,506 | | | 73,056 | |
Other income (expense) | |
| | |
| | |
| | |
| Other income (expense) | | | | |
Interest income and other | 2,202 |
| | 2,609 |
| | 7,219 |
| | 2,768 |
| Interest income and other | | 1,034 | | | 5,017 | |
Interest expense | (5,157 | ) | | (4,793 | ) | | (10,018 | ) | | (9,539 | ) | Interest expense | | (4,797) | | | (4,861) | |
| (2,955 | ) | | (2,184 | ) | | (2,799 | ) | | (6,771 | ) | |
| | | | (3,763) | | | 156 | |
Income before income tax provision | 62,644 |
| | 85,911 |
| | 135,856 |
| | 168,486 |
| Income before income tax provision | | 84,743 | | | 73,212 | |
Income tax provision | 14,470 |
| | 21,313 |
| | 30,935 |
| | 41,243 |
| Income tax provision | | 20,247 | | | 16,465 | |
Net income | $ | 48,174 |
| | $ | 64,598 |
| | $ | 104,921 |
| | $ | 127,243 |
| Net income | | $ | 64,496 | | | $ | 56,747 | |
Earnings per common share — basic | $ | 1.33 |
| | $ | 1.75 |
| | $ | 2.89 |
| | $ | 3.44 |
| Earnings per common share — basic | | $ | 1.93 | | | $ | 1.56 | |
Earnings per common share — diluted | $ | 1.27 |
| | $ | 1.69 |
| | $ | 2.76 |
| | $ | 3.33 |
| Earnings per common share — diluted | | $ | 1.84 | | | $ | 1.49 | |
Other comprehensive income (loss), net of tax | | | | | | | | |
Other comprehensive loss, net of tax | | Other comprehensive loss, net of tax | | | | |
Foreign currency translation adjustments, net of tax expense of $0 | $ | 9,568 |
| | $ | (4,815 | ) | | $ | (21,534 | ) | | $ | 408 |
| Foreign currency translation adjustments, net of tax expense of $0 | | $ | (5,242) | | | $ | (31,102) | |
Total other comprehensive income (loss), net of tax | 9,568 |
| | (4,815 | ) | | (21,534 | ) | | 408 |
| |
Total other comprehensive loss, net of tax | | Total other comprehensive loss, net of tax | | (5,242) | | | (31,102) | |
Comprehensive income | $ | 57,742 |
| | $ | 59,783 |
| | $ | 83,387 |
| | $ | 127,651 |
| Comprehensive income | | $ | 59,254 | | | $ | 25,645 | |
See accompanying notes to condensed consolidated financial statements
FTI Consulting, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Accumulated Other Comprehensive Loss | | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | | |
| Shares | | Amount | | | | | Total |
Balance at December 31, 2020 | 34,481 | | | $ | 345 | | | $ | 0 | | | $ | 1,506,271 | | | $ | (106,435) | | | $ | 1,400,181 | |
Net income | — | | | $ | — | | | $ | — | | | $ | 64,496 | | | $ | — | | | $ | 64,496 | |
Other comprehensive loss: | | | | | | | | | | | |
Cumulative translation adjustment | — | | | — | | | — | | | — | | | (5,242) | | | (5,242) | |
Issuance of common stock in connection with: | | | | | | | | | | | |
Exercise of options | 12 | | | — | | | 434 | | | — | | | — | | | 434 | |
Restricted share grants, less net settled shares of 63 | 157 | | | 1 | | | (7,232) | | | — | | | — | | | (7,231) | |
Stock units issued under incentive compensation plan | — | | | — | | | 2,603 | | | — | | | — | | | 2,603 | |
Purchase and retirement of common stock | (422) | | | (4) | | | (3,047) | | | (43,082) | | | — | | | (46,133) | |
Share-based compensation | — | | | — | | | 7,242 | | | — | | | — | | | 7,242 | |
Balance at March 31, 2021 | 34,228 | | | $ | 342 | | | $ | 0 | | | $ | 1,527,685 | | | $ | (111,677) | | | $ | 1,416,350 | |
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| | | | | | | | | | | | | | | Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | | | Common Stock | | Retained Earnings | | |
| Shares | | Amount | | Total | | Shares | | Amount | | Accumulated Other Comprehensive Loss | Total |
Balance at December 31, 2019 | 37,390 |
| | $ | 374 |
| | $ | 216,162 |
| | $ | 1,413,453 |
| | $ | (140,847 | ) | | $ | 1,489,142 |
| Balance at December 31, 2019 | 37,390 | | | $ | 374 | | | $ | 216,162 | | | $ | 1,413,453 | | | $ | (140,847) | | $ | 1,489,142 | |
Net income | — |
| | $ | — |
| | $ | — |
| | $ | 56,747 |
| | $ | — |
| | $ | 56,747 |
| Net income | — | | | $ | — | | | $ | — | | | $ | 56,747 | | | $ | — | | $ | 56,747 | |
Other comprehensive loss: | | | | | | | | | | | | Other comprehensive loss: | |
Cumulative translation adjustment | — |
| | — |
| | — |
| | — |
| | (31,102 | ) | | (31,102 | ) | Cumulative translation adjustment | — | | | — | | | — | | | — | | | (31,102) | | | (31,102) | |
Issuance of common stock in connection with: | | | | | | | | | | | | Issuance of common stock in connection with: | |
Exercise of options | 34 |
| | 1 |
| | 1,206 |
| | — |
| | — |
| | 1,207 |
| Exercise of options | 34 | | | 1 | | | 1,206 | | | — | | | — | | | 1,207 | |
Restricted share grants, less net settled shares of 58 | 136 |
| | 1 |
| | (6,768 | ) | | — |
| | — |
| | (6,767 | ) | Restricted share grants, less net settled shares of 58 | 136 | | | 1 | | | (6,768) | | | — | | | — | | | (6,767) | |
Stock units issued under incentive compensation plan | — |
| | — |
| | 2,314 |
| | — |
| | — |
| | 2,314 |
| Stock units issued under incentive compensation plan | — | | | — | | | 2,314 | | | — | | | — | | | 2,314 | |
Purchase and retirement of common stock | (450 | ) | | (5 | ) | | (50,306 | ) | | — |
| | — |
| | (50,311 | ) | Purchase and retirement of common stock | (450) | | | (5) | | | (50,306) | | | — | | | — | | | (50,311) | |
| Share-based compensation | — |
| | — |
| | 7,454 |
| | — |
| | — |
| | 7,454 |
| Share-based compensation | — | | | — | | | 7,454 | | | — | | | — | | | 7,454 | |
Balance at March 31, 2020 | 37,110 |
| | $ | 371 |
| | $ | 170,062 |
| | $ | 1,470,200 |
| | $ | (171,949 | ) | | $ | 1,468,684 |
| Balance at March 31, 2020 | 37,110 | | | $ | 371 | | | $ | 170,062 | | | $ | 1,470,200 | | | $ | (171,949) | | | $ | 1,468,684 | |
Net income | — |
| | $ | — |
| | $ | — |
| | $ | 48,174 |
| | $ | — |
| | $ | 48,174 |
| |
Other comprehensive income: | | | | | | | | | | | | |
Cumulative translation adjustment | — |
| | — |
| | — |
| | — |
| | 9,568 |
| | 9,568 |
| |
Issuance of common stock in connection with: | | | | | | | | | | | | |
Exercise of options | 33 |
| | — |
| | 1,191 |
| | — |
| | — |
| | 1,191 |
| |
Restricted share grants, less net settled shares of 18 | 38 |
| | 1 |
| | (2,155 | ) | | — |
| | — |
| | (2,154 | ) | |
Purchase and retirement of common stock | (471 | ) | | (5 | ) | | (51,048 | ) | | — |
| | — |
| | (51,053 | ) | |
Share-based compensation | — |
| | — |
| | 4,693 |
| | — |
| | — |
| | 4,693 |
| |
Balance at June 30, 2020 | 36,710 |
| | $ | 367 |
| | $ | 122,743 |
| | $ | 1,518,374 |
| | $ | (162,381 | ) | | $ | 1,479,103 |
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| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | |
| Shares | | Amount | | | | | Total |
Balance at December 31, 2018 | 38,147 |
| | $ | 381 |
| | $ | 299,534 |
| | $ | 1,196,727 |
| | $ | (147,817 | ) | | $ | 1,348,825 |
|
Net income | — |
| | $ | — |
| | $ | — |
| | $ | 62,645 |
| | $ | — |
| | $ | 62,645 |
|
Other comprehensive income: | | | | | | | | | | | |
Cumulative translation adjustment | — |
| | — |
| | — |
| | — |
| | 5,223 |
| | 5,223 |
|
Issuance of common stock in connection with: | | | | | | | | | | | |
Exercise of options | 55 |
| | 1 |
| | 2,211 |
| | — |
| | — |
| | 2,212 |
|
Restricted share grants, less net settled shares of 38 | 153 |
| | 1 |
| | (2,740 | ) | | — |
| | — |
| | (2,739 | ) |
Stock units issued under incentive compensation plan | — |
| | — |
| | 1,346 |
| | — |
| | — |
| | 1,346 |
|
Purchase and retirement of common stock | (328 | ) | | (3 | ) | | (21,880 | ) | | — |
| | — |
| | (21,883 | ) |
Share-based compensation | — |
| | — |
| | 6,393 |
| | — |
| | — |
| | 6,393 |
|
Balance at March 31, 2019 | 38,027 |
| | $ | 380 |
| | $ | 284,864 |
| | $ | 1,259,372 |
| | $ | (142,594 | ) | | $ | 1,402,022 |
|
Net income | — |
| | $ | — |
| | $ | — |
| | $ | 64,598 |
| | $ | — |
| | $ | 64,598 |
|
Other comprehensive loss: | | | | | | | | | | | |
Cumulative translation adjustment | — |
| | — |
| | — |
| | — |
| | (4,815 | ) | | (4,815 | ) |
Issuance of common stock in connection with: | | | | | | | | | | | |
Exercise of options | 87 |
| | 1 |
| | 3,075 |
| | — |
| | — |
| | 3,076 |
|
Restricted share grants, less net settled shares of 17 | 78 |
| | 1 |
| | (1,352 | ) | | — |
| | — |
| | (1,351 | ) |
Purchase and retirement of common stock | (580 | ) | | (6 | ) | | (48,326 | ) | | — |
| | — |
| | (48,332 | ) |
Share-based compensation | — |
| | — |
| | 3,814 |
| | — |
| | — |
| | 3,814 |
|
Balance at June 30, 2019 | 37,612 |
| | $ | 376 |
| | $ | 242,075 |
| | $ | 1,323,970 |
| | $ | (147,409 | ) | | $ | 1,419,012 |
|
See accompanying notes to condensed consolidated financial statements
FTI Consulting, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
| | | Six Months Ended June 30, | | Three Months Ended March 31, |
| 2020 | | 2019 | | 2021 | | 2020 |
Operating activities | | | | Operating activities | | | |
Net income | $ | 104,921 |
| | $ | 127,243 |
| Net income | $ | 64,496 | | | $ | 56,747 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | |
Adjustments to reconcile net income to net cash used in operating activities: | | Adjustments to reconcile net income to net cash used in operating activities: | | | |
Depreciation and amortization | 15,707 |
| | 14,304 |
| Depreciation and amortization | 8,161 | | | 7,823 | |
Amortization and impairment of other intangible assets | 4,645 |
| | 3,713 |
| |
Amortization and impairment of intangible assets | | Amortization and impairment of intangible assets | 2,801 | | | 2,331 | |
Acquisition-related contingent consideration | 1,120 |
| | 186 |
| Acquisition-related contingent consideration | 1,289 | | | 506 | |
Provision for doubtful accounts | 11,624 |
| | 6,260 |
| |
Provision for expected credit losses | | Provision for expected credit losses | 4,832 | | | 3,872 | |
Share-based compensation | 12,147 |
| | 10,207 |
| Share-based compensation | 7,242 | | | 7,454 | |
Amortization of debt discount and issuance costs | 5,987 |
| | 5,748 |
| |
Amortization of debt discount and issuance costs and other | | Amortization of debt discount and issuance costs and other | 2,815 | | | 2,978 | |
| Deferred income taxes | 4,128 |
| | 966 |
| Deferred income taxes | 3,612 | | | 545 | |
Other | 13 |
| | 225 |
| |
| Changes in operating assets and liabilities, net of effects from acquisitions: | | | | Changes in operating assets and liabilities, net of effects from acquisitions: | |
Accounts receivable, billed and unbilled | (42,804 | ) | | (186,854 | ) | Accounts receivable, billed and unbilled | (93,396) | | | (60,963) | |
Notes receivable | 5,993 |
| | 8,343 |
| Notes receivable | 1,899 | | | 7,051 | |
Prepaid expenses and other assets | 8,979 |
| | (1,953 | ) | Prepaid expenses and other assets | 1,900 | | | 9,442 | |
Accounts payable, accrued expenses and other | 2,230 |
| | (11,606 | ) | Accounts payable, accrued expenses and other | (7,803) | | | 11,136 | |
Income taxes | (2,344 | ) | | 23,458 |
| Income taxes | 9,355 | | | (667) | |
Accrued compensation | (107,217 | ) | | (55,183 | ) | Accrued compensation | (172,042) | | | (176,070) | |
Billings in excess of services provided | 4,285 |
| | 505 |
| Billings in excess of services provided | (1,745) | | | 4,253 | |
Net cash provided by (used in) operating activities | 29,414 |
| | (54,438 | ) | |
Net cash used in operating activities | | Net cash used in operating activities | (166,584) | | | (123,562) | |
Investing activities | | | | Investing activities | | | |
Purchases of property and equipment | (13,899 | ) | | (20,661 | ) | |
Other | 14 |
| | 69 |
| |
| Purchases of property and equipment and other | | Purchases of property and equipment and other | (7,976) | | | (8,228) | |
| Net cash used in investing activities | (13,885 | ) | | (20,592 | ) | Net cash used in investing activities | (7,976) | | | (8,228) | |
Financing activities | | | | Financing activities | | | |
Borrowings under revolving line of credit | 90,000 |
| | 25,000 |
| Borrowings under revolving line of credit | 197,500 | | | 55,000 | |
| Repayments under revolving line of credit | (55,000 | ) | | (5,000 | ) | Repayments under revolving line of credit | (27,500) | | | (5,000) | |
| Purchase and retirement of common stock | (99,678 | ) | | (66,893 | ) | Purchase and retirement of common stock | (46,133) | | | (49,135) | |
Net issuance of common stock under equity compensation plans | (6,523 | ) | | 1,009 |
| |
Share-based compensation tax withholdings and other | | Share-based compensation tax withholdings and other | (6,798) | | | (5,583) | |
Payments for business acquisition liabilities | (3,948 | ) | | (2,282 | ) | Payments for business acquisition liabilities | (3,374) | | | 0 | |
Deposits and other | 5,098 |
| | 1,014 |
| Deposits and other | 2,721 | | | 3,870 | |
Net cash used in financing activities | (70,051 | ) | | (47,152 | ) | |
| Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | 116,416 | | | (848) | |
Effect of exchange rate changes on cash and cash equivalents | (10,645 | ) | | (781 | ) | Effect of exchange rate changes on cash and cash equivalents | (3,388) | | | (13,672) | |
Net decrease in cash and cash equivalents | (65,167 | ) | | (122,963 | ) | Net decrease in cash and cash equivalents | (61,532) | | | (146,310) | |
Cash and cash equivalents, beginning of period | 369,373 |
| | 312,069 |
| Cash and cash equivalents, beginning of period | 294,953 | | | 369,373 | |
Cash and cash equivalents, end of period | $ | 304,206 |
| | $ | 189,106 |
| Cash and cash equivalents, end of period | $ | 233,421 | | | $ | 223,063 | |
Supplemental cash flow disclosures | | | | Supplemental cash flow disclosures | | | |
Cash paid for interest | $ | 3,668 |
| | $ | 3,467 |
| Cash paid for interest | $ | 3,854 | | | $ | 3,136 | |
Cash paid for income taxes, net of refunds | $ | 29,150 |
| | $ | 16,820 |
| Cash paid for income taxes, net of refunds | $ | 7,283 | | | $ | 16,588 | |
Non-cash investing and financing activities: | | | | Non-cash investing and financing activities: | |
Issuance of stock units under incentive compensation plans | $ | 2,314 |
| | $ | 1,346 |
| Issuance of stock units under incentive compensation plans | $ | 2,603 | | | $ | 2,314 | |
Purchase and retirement of common stock not yet paid | $ | 1,829 |
| | $ | 3,322 |
| |
|
See accompanying notes to condensed consolidated financial statements
FTI Consulting, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(dollar and share amounts in tables in thousands, except per share data)
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies
The unaudited condensed consolidated financial statements of FTI Consulting, Inc., including its consolidated subsidiaries (collectively, the “Company,” “we,” “our” or “FTI Consulting”), presented herein, have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and under the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Some of the information and footnote disclosures normally included in annual financial statements have been condensed or omitted pursuant to those rules and regulations. Certain prior period amounts have been reclassified to conform to the current period presentation. In management’s opinion, the interim financial statements reflect all adjustments that are necessary for a fair presentation of the results for the interim periods presented. All adjustments made were normal recurring accruals. Results of operations for the interim periods presented herein are not necessarily indicative of results of operations for a full year. These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 20192020 filed with the SEC.
2. New Accounting Standards
Recently Adopted Accounting Standards
In August 2018,2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-15 ("ASU 2018-15"),2020-06, Internal Use SoftwareDebt—Debt with Conversion and Other Options (Subtopic 350-40)470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Customer's Accounting for Implementation Costs IncurredConvertible Instruments and Contracts in a Cloud Computing Arrangement That is a Service Contractan Entity’s Own Equity, which requires companiessimplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity contracts to capitalize implementation costs of a hosting arrangement that is a service contract and expense those costs over the term of the hosting arrangement. On January 1, 2020, we prospectively adopted ASU 2018-15 for eligible costs incurred on or after the adoption date. The adoption of this standard resulted in the recognition of additional internal use software costs, which are included in the “Property and equipment, net” financial statement line item on the Condensed Consolidated Balance Sheets. The impact was not material on the Condensed Consolidated Balance Sheets as of June 30, 2020 or on the Condensed Consolidated Statements of Comprehensive Income, Condensed Consolidated Statements of Stockholders’ Equity or Condensed Consolidated Statements of Cash Flowsqualify for the threederivative scope exception and six months ended June 30, 2020.
Accounting Standards Not Yet Adopted
In December 2019,simplifies the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to reduce the complexitydiluted earnings per share calculation in accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying and amending existing guidance.areas. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, although early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance on its consolidated financial statements.
3. Earnings Perper Common Share
Basic earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common share adjusts basic earnings per common share for the effects of potentially dilutive common shares. Potentially dilutive common shares include the dilutive effects of shares issuable under our equity compensation plans, including stock options and restricted shares (restricted share awards, restricted stock units and performance stock units), each using the treasury stock method.
Because we expect to settle the principal amount of the outstanding 2.0% convertible senior notes due 2023 ("2023 Convertible Notes") in cash, we use the treasury stock method for calculating the potential dilutive effect of the conversion feature on earnings per common share, if applicable. The conversion feature had a dilutive impact on earnings per common share for the three and six months ended June 30,March 31, 2021 and 2020, as the average market price per share of our common stock for the periodperiods exceeded the conversion price of $101.38 per share. See Note 8, "Debt" for additional information about the 2023 Convertible Notes.
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Numerator — basic and diluted | | | | | | | |
Net income | $ | 48,174 |
| | $ | 64,598 |
| | $ | 104,921 |
| | $ | 127,243 |
|
Denominator | | | | | | | |
Weighted average number of common shares outstanding — basic | 36,169 |
| | 36,960 |
| | 36,292 |
| | 36,970 |
|
Effect of dilutive convertible notes | 507 |
| | — |
| | 470 |
| | — |
|
Effect of dilutive stock options | 444 |
| | 459 |
| | 453 |
| | 445 |
|
Effect of dilutive restricted shares | 732 |
| | 749 |
| | 806 |
| | 778 |
|
Weighted average number of common shares outstanding — diluted | 37,852 |
| | 38,168 |
| | 38,021 |
| | 38,193 |
|
Earnings per common share — basic | $ | 1.33 |
| | $ | 1.75 |
| | $ | 2.89 |
| | $ | 3.44 |
|
Earnings per common share — diluted | $ | 1.27 |
| | $ | 1.69 |
| | $ | 2.76 |
| | $ | 3.33 |
|
Antidilutive stock options and restricted shares | 54 |
| | 25 |
| | 33 |
| | 38 |
|
7
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
Numerator — basic and diluted | | | | | | | |
Net income | | | | | $ | 64,496 | | | $ | 56,747 | |
Denominator | | | | | | | |
Weighted average number of common shares outstanding — basic | | | | | 33,483 | | | 36,415 | |
Effect of dilutive restricted shares | | | | | 760 | | | 881 | |
Effect of dilutive stock options | | | | | 370 | | | 461 | |
Effect of dilutive convertible notes | | | | | 450 | | | 433 | |
Weighted average number of common shares outstanding — diluted | | | | | 35,063 | | | 38,190 | |
Earnings per common share — basic | | | | | $ | 1.93 | | | $ | 1.56 | |
Earnings per common share — diluted | | | | | $ | 1.84 | | | $ | 1.49 | |
Antidilutive stock options and restricted shares | | | | | 8 | | | 12 | |
4. Revenues
We generate the majority of our revenues by providing consulting services to our clients. Most of our consulting service contracts are based on one of the following types of contract arrangements:
| |
• | •Time and expense arrangements require the client to pay us based on the number of hours worked at contractually agreed-upon rates. We recognize revenues for these contract arrangements based on hours incurred and contracted rates utilizing a right-to-invoice practical expedient because we have a right to consideration for services completed to date. When a time and expense arrangement has a not-to-exceed or "cap" amount and we expect to perform work in excess of the cap, we recognize revenues up to the cap amount specified by the client, based on the efforts or hours incurred as a percentage of total efforts or hours expected to be incurred (i.e., proportional performance method). •Fixed-fee arrangements require the client to pay a fixed fee in exchange for a predetermined set of professional services. We recognize revenues earned to date by applying the proportional performance method. Generally, these arrangements have one performance obligation. • require the client to pay us based on the number of hours worked at contractually agreed-upon rates. We recognize revenues for these arrangements based on hours incurred and contracted rates utilizing a right-to-invoice practical expedient because we have a right to consideration for services completed to date. |
| |
• | Fixed-fee arrangements require the client to pay a pre-established fee in exchange for a predetermined set of professional services. We recognize revenues earned to date by applying the proportional performance method. Generally, these arrangements have one performance obligation.
|
| |
• | Performance-based or contingent arrangements represent forms of variable consideration. In these arrangements, our fees are based on the attainment of contractually defined objectives with our client, such as completing a business transaction or assisting the client in achieving a specific business objective. We recognize revenues earned to date in an amount that is probable not to reverse and by applying the proportional performance method when the criteria for over time revenue recognition are met. |
Revenues are recognized when we satisfy a performance obligation by transferring services promised in a contract to a customer and in an amount that reflectsis probable not to reverse and by applying the consideration thatproportional performance method when the criteria for over time revenue recognition are met.
Certain fees in our time and materials arrangements may be subject to approval by a third-party, such as a bankruptcy court and other regulatory agency. In such cases, we expectrecord revenues based on the amount we estimate we will be entitled to receive in exchange for those services. Performance obligationsour services and only to the extent a significant reversal of revenue is not likely to occur when the uncertainty associated with the estimate is subsequently resolved. Potential fee reductions imposed by bankruptcy courts and other regulatory agencies or negotiated with specific clients are estimated on a specific identification basis. Our estimates may vary depending on the nature of the engagement, client economics, historical experience and other appropriate factors. When there are changes in our contracts represent distinct or separate services thatestimates of potential fee reductions, we providerecord such changes to revenues with a corresponding offset to our customers.billed and unbilled accounts receivable.
Revenues recognized during the current period may include revenues from performance obligations satisfied or partially satisfied in previous periods. This primarily occurs when the estimated transaction price has changed based on our current probability assessment over whether the agreed-upon outcome for our performance-based and contingent arrangements will be achieved. The aggregate amount of revenues recognized related to a change in the transaction price in the current period, which related to performance obligations satisfied or partially satisfied in a prior period, was $8.3$3.9 million and $14.1$8.3 million for the three and six months ended June 30,March 31, 2021 and 2020, respectively, and $21.2 million and $23.7 million for the three and six months ended June 30, 2019, respectively.
Unfulfilled performance obligations primarily consist of fees not yet recognized on certain fixed-fee arrangements and performance-based and contingent arrangements. As of June 30, 2020March 31, 2021 and December 31, 2019,2020, the aggregate amount of the remaining contract transaction price allocated to unfulfilled performance obligations was $1.7$7.9 million and $2.3$8.5 million, respectively. We expect to recognize the majority of the related revenues over the next 24 months. We elected to utilize the optional exemption to exclude from this disclosure fixed-fee and performance-based and contingent arrangements with an
original expected duration of one year or less and to exclude our time and expense arrangements for which revenues are recognized using the right-to-invoice practical expedient.
Contract assets are defined as assets for which we have recorded revenue but are not yet entitled to receive our fees because certain events, such as completion of the measurement period or client approval, must occur. The contract asset balance was immaterial$1.8 million as of June 30, 2020March 31, 2021 and $1.3$2.6 million as of December 31, 2019.
2020.
Contract liabilities are defined as liabilities incurred when we have received consideration but have not yet performed the agreed-upon services. This may occur when clients pay fees before work begins. The contract liability balance was $1.0 million as of March 31, 2021 and immaterial as of June 30, 2020 and December 31, 2019.2020.
5. Accounts Receivable and Allowance for Doubtful AccountsExpected Credit Losses
TimingThe following table summarizes the components of revenue recognition often differs from"Accounts receivable, net" as presented on the timing of billing to our customers. Generally, we transfer goods or services to a customer before the customer pays consideration or payment is due. If we have an unconditional right to invoice and receive payment for goods or services already provided, we record billed and unbilled receivables on our Condensed Consolidated Balance Sheets. Our contract terms generally include a requirement of payment within 30 days when no contingencies exist. Payment terms and conditions vary depending on the jurisdiction, market and type of service, and whether regulatory or other third-party approvals are required. At times, we may execute contracts in a form provided by customers that might include different payment terms and contracts may be negotiated at the client’s request.Sheets:
| | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
Accounts receivable: | | | |
Billed receivables | $ | 542,247 | | | $ | 513,459 | |
Unbilled receivables | 294,194 | | | 236,285 | |
Allowance for expected credit losses | (37,925) | | | (38,387) | |
Accounts receivable, net | $ | 798,516 | | | $ | 711,357 | |
We maintain an allowance for expected credit losses, which represents the estimated aggregate amount of credit risk arising from the inability or unwillingness of specific clients to pay our fees or disputes that may affect our ability to fully collect our billed accounts receivable. We record adjustments toour estimate of lifetime expected credit losses concurrently with the initial recognition of the underlying receivable. Accounts receivable, net of the allowance for doubtful accounts and unbilled services as a reduction in revenues when there are changes in estimates of fee reductions, such as those fee reductions imposed by bankruptcy courts and other regulatory institutions for both billed and unbilled accounts receivable. Theexpected credit losses, represents the amount we expect to collect. At each reporting date, we adjust the allowance for doubtful accountsexpected credit losses to reflect our current estimate.
The following table summarizes the total provision for expected credit losses and unbilled services is also adjusted after the related work has been billed to the client and we determine that all or a portion of the accounts receivable is not expected to be collected.write-offs:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
Provision for expected credit losses (1) | | | | | $ | 4,832 | | | $ | 3,872 | |
Write-offs | | | | | $ | 6,916 | | | $ | 6,066 | |
(1)Adjustments to the allowance for doubtful accounts and unbilled services related to expected credit losses are recorded to selling, general and& administrative ("SG&A") expenses on the Condensed Consolidated Statements of Comprehensive Income as bad debt expense. Judgment is required to assess collectability and to adjustIncome.
We estimate the allowancecurrent-period provision for doubtful accounts and unbilled services to the current estimate of expected credit losses.losses on a specific identification basis. Our judgments consider customerregarding a specific risksclient’s credit risk considers factors such as the counterparty’s creditworthiness, knowledge of the specific client’s circumstances and historical collection experience.experience for similar clients. Other factors include, but are not limited to, current economic conditions and forward-looking estimates.
Our bad debt expense totaled $7.8 millionactual experience may vary from our estimates. If the financial condition of our clients were to deteriorate, resulting in their inability or unwillingness to pay our fees, we may need to record additional provisions for expected credit losses in future periods. The risk of credit losses may be mitigated to the extent that we received a retainer from some of our clients prior to performing services. Our provision for expected credit losses includes recoveries, direct write-offs and $11.6 million for the three and six months ended June 30, 2020, respectively, and $2.5 million and $6.3 million for the three and six months ended June 30, 2019, respectively. Our billedcharges to other accounts. Billed accounts receivables are written off when the potential for recovery is considered remote. Our write-offs totaled $7.5 million and $13.5 million for the three and six months ended June 30, 2020, respectively, and $3.4 million and $5.9 million for the three and six months ended June 30, 2019, respectively.
6. Goodwill and Other Intangible Assets
Goodwill
The table below summarizes the changes in the carrying amount of goodwill by reportable segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Corporate Finance & Restructuring (1) | | Forensic and Litigation Consulting (1) | | Economic Consulting (1) | | Technology (1) | | Strategic Communications (2) | | Total |
Balance as of December 31, 2020 | $ | 506,072 | | | $ | 233,374 | | | $ | 269,087 | | | $ | 96,821 | | | $ | 129,525 | | | $ | 1,234,879 | |
Foreign currency translation adjustment and other | (1,853) | | | (192) | | | (38) | | | 19 | | | 477 | | | (1,587) | |
Balance as of March 31, 2021 | $ | 504,219 | | | $ | 233,182 | | | $ | 269,049 | | | $ | 96,840 | | | $ | 130,002 | | | $ | 1,233,292 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Corporate Finance & Restructuring | | Forensic and Litigation Consulting | | Economic Consulting | | Technology | | Strategic Communications | | Total |
Balance at December 31, 2019 | | | | | | | | | | | |
Goodwill | $ | 478,842 |
| | $ | 232,120 |
| | $ | 268,677 |
| | $ | 96,770 |
| | $ | 320,497 |
| | $ | 1,396,906 |
|
Accumulated goodwill impairment | — |
| | — |
| | — |
| | — |
| | (194,139 | ) | | (194,139 | ) |
Goodwill, net at December 31, 2019 | 478,842 |
|
| 232,120 |
|
| 268,677 |
|
| 96,770 |
|
| 126,358 |
|
| 1,202,767 |
|
Foreign currency translation adjustment and other | (285 | ) | | (1,879 | ) | | (322 | ) | | (88 | ) | | (4,031 | ) | | (6,605 | ) |
Balance at June 30, 2020 | | | | | | | | | | | |
Goodwill | 478,557 |
|
| 230,241 |
|
| 268,355 |
|
| 96,682 |
| | 316,466 |
| | 1,390,301 |
|
Accumulated goodwill impairment | — |
| | — |
| | — |
| | — |
| | (194,139 | ) | | (194,139 | ) |
Goodwill, net at June 30, 2020 | $ | 478,557 |
|
| $ | 230,241 |
|
| $ | 268,355 |
|
| $ | 96,682 |
|
| $ | 122,327 |
|
| $ | 1,196,162 |
|
(1) There were 0 accumulated impairment losses for the Corporate Finance & Restructuring ("Corporate Finance"), Forensic and Litigation Consulting ("FLC"), Economic Consulting or Technology segments as of March 31, 2021 and December 31, 2020, respectively.
(2) Amounts for our Strategic Communications segment include gross carrying values of $324.1 million and $323.7 million as of March 31, 2021 and December 31, 2020, respectively, and accumulated impairment losses of $194.1 million as of March 31, 2021 and December 31, 2020.
Other The purchase price allocation for the 2020 acquisition assigned to the Corporate Finance segment is preliminary.
Intangible Assets
Other intangibleIntangible assets were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2020 | | December 31, 2019 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Amortizing intangible assets | | | | | | | | | | | | |
Customer relationships | | $ | 97,849 |
| | $ | 78,935 |
| | $ | 18,914 |
| | $ | 99,613 |
| | $ | 76,808 |
| | $ | 22,805 |
|
Trademarks | | 9,898 |
| | 1,481 |
| | 8,417 |
| | 9,855 |
| | 653 |
| | 9,202 |
|
Acquired software and other | | 3,401 |
| | 2,244 |
| | 1,157 |
| | 3,386 |
| | 2,061 |
| | 1,325 |
|
| | 111,148 |
| | 82,660 |
| | 28,488 |
| | 112,854 |
| | 79,522 |
| | 33,332 |
|
Non-amortizing intangible assets | | | | | | | | | | | | |
Trademarks | | 5,100 |
| | — |
| | 5,100 |
| | 5,100 |
| | — |
| | 5,100 |
|
Total | | $ | 116,248 |
| | $ | 82,660 |
| | $ | 33,588 |
| | $ | 117,954 |
| | $ | 79,522 |
| | $ | 38,432 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Amortizing intangible assets | | | | | | | | | | | | |
Customer relationships | | $ | 111,426 | | | $ | 87,356 | | | $ | 24,070 | | | $ | 111,556 | | | $ | 85,180 | | | $ | 26,376 | |
Trademarks | | 11,329 | | | 3,212 | | | 8,117 | | | 11,809 | | | 2,768 | | | 9,041 | |
Acquired software and other | | 3,458 | | | 2,573 | | | 885 | | | 3,618 | | | 2,585 | | | 1,033 | |
| | 126,213 | | | 93,141 | | | 33,072 | | | 126,983 | | | 90,533 | | | 36,450 | |
Non-amortizing intangible assets | | | | | | | | | | | | |
Trademarks | | 5,100 | | | — | | | 5,100 | | | 5,100 | | | — | | | 5,100 | |
Total | | $ | 131,313 | | | $ | 93,141 | | | $ | 38,172 | | | $ | 132,083 | | | $ | 90,533 | | | $ | 41,550 | |
Other intangibleIntangible assets with finite lives are amortized over their estimated useful lives. We recorded amortization expense of $2.3$2.8 million and $4.6$2.3 million for the three and six months ended June 30,March 31, 2021 and 2020, respectively, and $1.9 million and $3.7 million for the three and six months ended June 30, 2019, respectively.
We estimate our future amortization expense for our intangible assets with finite lives to be as follows:
|
| | | |
Year | As of June 30, 2020 (1) |
2020 (remaining) | $ | 4,650 |
|
2021 | 8,792 |
|
2022 | 7,002 |
|
2023 | 3,607 |
|
2024 | 2,204 |
|
Thereafter | 2,233 |
|
| $ | 28,488 |
|
| | | | | |
Year | As of March 31, 2021 (1) |
2021 (remaining) | $ | 7,801 | |
2022 | 8,536 | |
2023 | 4,850 | |
2024 | 3,414 | |
2025 | 2,729 | |
Thereafter | 5,742 | |
| $ | 33,072 | |
| |
(1)(1)Actual amortization expense to be reported in future periods could differ from these estimates because of new intangible asset acquisitions, impairments, changes in useful lives, or other relevant factors or changes. | Actual amortization expense to be reported in future periods could differ from these estimates because of new intangible asset acquisitions, impairments, changes in useful lives, or other relevant factors or changes. |
7. Financial Instruments
The following table below presents the carrying amounts and estimated fair values of our financial instruments by hierarchy level as of June 30, 2020March 31, 2021 and December 31, 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 |
| | | Hierarchy Level (Fair Value) |
| Carrying Amount | | Level 1 | | Level 2 | | Level 3 |
Liabilities | | | | | | | |
Acquisition-related contingent consideration, including current portion (1) | $ | 19,795 | | | $ | 0 | | | $ | 0 | | | $ | 19,795 | |
2023 Convertible Notes (2) | 288,840 | | | 0 | | | 463,237 | | | 0 | |
Total | $ | 308,635 | | | $ | 0 | | | $ | 463,237 | | | $ | 19,795 | |
|
| | | | | | | | | | | | | | | |
| June 30, 2020 |
| | | Hierarchy Level (Fair Value) |
| Carrying Amount | | Level 1 | | Level 2 | | Level 3 |
Liabilities | | | | | | | |
Acquisition-related contingent consideration, including current portion (1) | $ | 11,194 |
| | $ | — |
| | $ | — |
| | $ | 11,194 |
|
2023 Convertible Notes (2) | 280,808 |
| | — |
| | 399,689 |
| |
|
Total | $ | 292,002 |
| | $ | — |
| | $ | 399,689 |
| | $ | 11,194 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2019 |
| | | Hierarchy Level (Fair Value) |
| Carrying Amount | | Level 1 | | Level 2 | | Level 3 |
Liabilities | | | | | | | |
Acquisition-related contingent consideration, including current portion (1) | $ | 14,826 |
| | $ | — |
| | $ | — |
| | $ | 14,826 |
|
2023 Convertible Notes (2) | 275,609 |
| | — |
| | 398,016 |
| | — |
|
Total | $ | 290,435 |
| | $ | — |
| | $ | 398,016 |
| | $ | 14,826 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| | | Hierarchy Level (Fair Value) |
| Carrying Amount | | Level 1 | | Level 2 | | Level 3 |
Liabilities | | | | | | | |
Acquisition-related contingent consideration, including current portion (1) | $ | 20,118 | | | $ | 0 | | | $ | 0 | | | $ | 20,118 | |
2023 Convertible Notes (2) | 286,131 | | | 0 | | | 396,982 | | | 0 | |
Total | $ | 306,249 | | | $ | 0 | | | $ | 396,982 | | | $ | 20,118 | |
| |
(1)(1)The short-term portion is included in “Accounts payable, accrued expenses and other” and the long-term portion is included in “Other liabilities” on the Condensed Consolidated Balance Sheets. (2)The carrying values include unamortized deferred debt issue costs and debt discount. | The short-term portion is included in “Accounts payable, accrued expenses and other” and the long-term portion is included in “Other liabilities” on the Condensed Consolidated Balance Sheets. |
| |
(2)
| The carrying values include unamortized deferred debt issue costs and debt discount. |
The fair values of financial instruments not included in the tables above are estimated to be equivalentequal to their carrying values as of June 30, 2020March 31, 2021 and December 31, 2019.2020.
We estimate the fair value of our 2023 Convertible Notes based on their last actively traded prices. The fair value of our 2023 Convertible Notes is classified within Level 2 of the fair value hierarchy because it is traded in less active markets.
We estimate the fair value of acquisition-related contingent consideration using either a probability-weighted discounted cash flow model or a Monte Carlo simulation. These fair value estimates represent Level 3 measurements as they are based on significant inputs not observed in the market and reflect our own assumptions. We have multiple valuation models that use different inputs and assumptions based on the timing of the acquisitions. As a result, the significant unobservable inputs used in these models vary. The acquisition-related contingent consideration subject to the probability-weighted discounted cash flow model was valued using significant unobservable inputs including a discount rate of 13.5% and future cash flows. The acquisition-related contingent consideration subject to the Monte Carlo simulation was valued using significant unobservable inputs including a volatility rate of 30.0%, a discount rate of 13.6%, which reflects the weighted average of our cost of debt and adjusted cost of equity of the acquired company, and future cash flows. Significant increases (or decreases) in these
unobservable inputs in isolation would result in significantly lower (or higher) fair values. We reassess the fair value of our acquisition-related contingent consideration at each reporting period based on additional information as it becomes available.
The table below presents the change in our liability for acquisition-related contingent consideration for our Level 3 financial instruments is as follows:
|
| | | |
| Liability for Acquisition-Related Contingent Consideration |
Balance at December 31, 2019 | $ | 14,826 |
|
Accretion expense (1) | 506 |
|
Foreign currency translation adjustment (2) | (148 | ) |
Balance at March 31, 2020 | $ | 15,184 |
|
Accretion expense (1) | 614 |
|
Payments | (4,692 | ) |
Foreign currency translation adjustment (2) | 88 |
|
Balance at June 30, 2020 | $ | 11,194 |
|
|
| | | |
| Liability for Acquisition-Related Contingent Consideration |
Balance at December 31, 2018 | $ | 3,698 |
|
Accretion expense (1) | 93 |
|
Balance at March 31, 2019 | $ | 3,791 |
|
Accretion expense (1) | 93 |
|
Payments | (1,000 | ) |
Balance at June 30, 2019 | $ | 2,884 |
|
Balance at December 31, 2020 | $ | 20,118 | |
| |
Accretion expense (1) | Accretion expense is included in "Selling, general and administrative expenses" on the Condensed Consolidated Statements of Comprehensive Income.1,289 | |
Payments | (1,000) | |
Foreign currency translation adjustment (2) | (612) | |
Balance at March 31, 2021 | $ | 19,795 | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| | | | | |
| Contingent Consideration |
Balance at December 31, 2019 | $ | 14,826 | |
| |
(2)Accretion expense (1)
| 506 | |
| |
Foreign currency translation adjustments are included in "Other comprehensive income (loss), net of tax" on the Condensed Consolidated Statements of Comprehensive Income.adjustment (2) | (148) | |
Balance at March 31, 2020 | $ | 15,184 | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
(1)Accretion expense is included in SG&A expenses on the Condensed Consolidated Statements of Comprehensive Income.
(2)Foreign currency translation adjustments are included in "Other comprehensive loss, net of tax" on the Condensed Consolidated Statements of Comprehensive Income.
8. Debt
The table below summarizespresents the components of the Company’s debt:
| | | June 30, 2020 | | December 31, 2019 | | March 31, 2021 | | December 31, 2020 |
2023 Convertible Notes | $ | 316,250 |
| | $ | 316,250 |
| 2023 Convertible Notes | $ | 316,250 | | | $ | 316,250 | |
Credit Facility | 35,000 |
| | — |
| Credit Facility | 170,000 | | | 0 | |
Total debt | 351,250 |
| | 316,250 |
| Total debt | 486,250 | | | 316,250 | |
Less: deferred debt discount | (30,912 | ) | | (35,393 | ) | Less: deferred debt discount | (23,962) | | | (26,310) | |
Less: deferred debt issue costs | (4,530 | ) | | (5,248 | ) | Less: deferred debt issue costs | (3,448) | | | (3,809) | |
Long-term debt, net (1) | $ | 315,808 |
| | $ | 275,609 |
| Long-term debt, net (1) | $ | 458,840 | | | $ | 286,131 | |
Additional paid-in capital | $ | 35,306 |
| | $ | 35,306 |
| Additional paid-in capital | $ | 35,306 | | | $ | 35,306 | |
Discount attribution to equity | (1,175 | ) | | (1,175 | ) | Discount attribution to equity | (1,175) | | | (1,175) | |
Equity component, net | $ | 34,131 |
| | $ | 34,131 |
| Equity component, net | $ | 34,131 | | | $ | 34,131 | |
| |
(1)(1)There were 0 current portions of long-term debt as of March 31, 2021 and December 31, 2020. | There were 0 current portions of long-term debt as of June 30, 2020 and December 31, 2019. |
2023 Convertible Notes
On August 20, 2018, we issued the 2023 Convertible Notes in an aggregate principal amount of $316.3 million. The 2023 Convertible Notes bear interest at a fixed rate of 2.0% per year, payable semiannually in arrears on February 15th and
August 15th of each year and will mature on August 15, 2023, unless earlier converted or repurchased. The 2023 Convertible Notes are senior unsecured obligations of the Company.
The 2023 Convertible Notes are convertible at maturity at a conversion rate of 9.8643 shares of our common stock per $1,000 principal amount of the 2023 Convertible Notes (equivalent to a conversion price of approximately $101.38 per share of common stock). Subject to the conditions set forth in the indenture governing the 2023 Convertible Notes, holders may convert their 2023 Convertible Notes at any time prior to the close of business on the business day immediately preceding May 15, 2023. The circumstances required to allow the holders to convert their 2023 Convertible Notes prior to maturity were not met as of June 30, 2020.March 31, 2021.
The excess of the principal amount of the liability over its carrying amount ("debt discount") is amortized to interest expense over the term of the 2023 Convertible Notes using the effective interest rate method.
We incurred debt issue costs and allocated the total amount to the liability and equity components of the 2023 Convertible Notes based on their relative values. The debt issue costs attributable to the liability component are amortized to interest expense over the term of the 2023 Convertible Notes using the effective interest rate method. Issuance costs attributable to the equity component were netted with the equity component in stockholders' equity.
The table below summarizes the amount of interest cost recognized by us for both the contractual interest expense and amortization of the debt discount for the 2023 Convertible Notes:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | | Three Months Ended March 31, |
| 2020 | | 2019 | | 2020 | | 2019 | | | 2021 | | 2020 |
Contractual interest expense | $ | 1,581 |
| | $ | 1,581 |
| | $ | 3,162 |
| | $ | 3,162 |
| Contractual interest expense | | $ | 1,581 | | | $ | 1,581 | |
Amortization of debt discount (1) | 2,255 |
| | 2,137 |
| | 4,480 |
| | 4,245 |
| Amortization of debt discount (1) | | 2,348 | | | 2,225 | |
Total | $ | 3,836 |
| | $ | 3,718 |
| | $ | 7,642 |
| | $ | 7,407 |
| Total | | $ | 3,929 | | | $ | 3,806 | |
| |
(1)(1)The effective interest rate of the liability component is 5.45%. | The effective interest rate of the liability component is 5.45%. |
Credit Facility
On June 26, 2015, we entered into a credit agreement, (the "Original Credit Agreement"), which provides for a $550.0 million senior secured bank revolving credit facility (the “Credit(“Original Credit Facility”) maturing on June 26, 2020. In November 2018, we amended and restated the credit agreement to the Original Credit Agreement,Facility, to, among other things, extend the maturity of the revolving loans under the Credit Facility to November 30, 2023 and incurred an additional $1.7 million of debt issuance costs (the Original Credit AgreementFacility as amended and restated, the “Credit Agreement”Facility”).
The Company classified the borrowings under the Company’s Credit Facility as long-term debt in the accompanying Condensed Consolidated Balance Sheets, as amounts due under the Credit Facility are not contractually required or expected to be liquidated for more than one year from the applicable balance sheet date. Additionally, $1.0As of March 31, 2021, $1.1 million of the borrowing limit under the Credit Facility was utilized (and, therefore, unavailable) as of June 30, 2020 for letters of credit.
There were $1.2$1.2 million and $2.0$1.3 million of unamortized debt issue costs related to the Credit Facility as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. These amounts wereare included in “Other assets” on our Condensed Consolidated Balance Sheets.
9. Leases
We lease office space and equipment under non-cancelable operating leases. We recognize operating lease expense on a straight-line basis over the lease term, which may include renewal or termination options that are reasonably certain of exercise. Leases with an initial term of 12 months or less are not recorded on the balance sheet and are expensed on a straight-line basis. Most leases include one1 or more options to renew, with renewal terms that can extend the lease term from threesix months to seven years. The exercise of lease renewal options is at our sole discretion. Certain of our lease agreements include rental payments that are adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The table below summarizes the carrying amount of our operating lease assets and liabilities:
| | | | | | | | | | | | | | | | | | | | |
Leases | | Classification | | March 31, 2021 | | December 31, 2020 |
Assets | | | | | | |
Operating lease assets | | Operating lease assets | | $ | 148,322 | | | $ | 156,645 | |
Total lease assets | | | | $ | 148,322 | | | $ | 156,645 | |
Liabilities | | | | | | |
Current | | | | | | |
Operating lease liabilities | | Accounts payable, accrued expenses and other | | $ | 38,494 | | | $ | 42,716 | |
Noncurrent | | | | | | |
Operating lease liabilities | | Noncurrent operating lease liabilities | | 153,376 | | | 161,677 | |
Total lease liabilities | | | | $ | 191,870 | | | $ | 204,393 | |
|
| | | | | | | | | | |
Leases | | Classification | | As of June 30, 2020 | | As of December 31, 2019 |
Assets | | | | | | |
Operating lease assets | | Operating lease assets | | $ | 152,245 |
| | $ | 159,777 |
|
Total lease assets | | | | $ | 152,245 |
| | $ | 159,777 |
|
Liabilities | | | | | | |
Current | | | | | | |
Operating lease liabilities | | Accounts payable, accrued expenses and other | | $ | 39,595 |
| | $ | 35,727 |
|
Noncurrent | | | | | | |
Operating lease liabilities | | Noncurrent operating lease liabilities | | 161,753 |
| | 176,378 |
|
Total lease liabilities | | | | $ | 201,348 |
| | $ | 212,105 |
|
The table below summarizes total lease costs:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
Lease Cost | 2020 | | 2019 | | 2020 | | 2019 |
Operating lease costs | $ | 11,800 |
| | $ | 11,044 |
| | $ | 23,599 |
| | $ | 21,909 |
|
Short-term lease costs | 487 |
| | 566 |
| | 1,009 |
| | 1,429 |
|
Variable lease costs | 2,846 |
| | 2,685 |
| | 5,832 |
| | 5,698 |
|
Sublease income | (1,041 | ) | | (1,246 | ) | | (2,130 | ) | | (2,443 | ) |
Total lease cost, net | $ | 14,092 |
| | $ | 13,049 |
| | $ | 28,310 |
| | $ | 26,593 |
|
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
Lease Cost | | | | | 2021 | | 2020 |
Operating lease costs | | | | | $ | 12,082 | | | $ | 11,900 | |
Short-term lease costs | | | | | 489 | | | 522 | |
Variable lease costs | | | | | 3,463 | | | 2,987 | |
Sublease income | | | | | (1,048) | | | (1,090) | |
Total lease cost, net | | | | | $ | 14,986 | | | $ | 14,319 | |
We sublease certain of our leased office spaces to third parties. Our sublease portfolio consists of leases of office space that we have vacated before the lease term expiration. Operating lease expense on vacated office space is reduced by sublease rental income, which is recorded to SG&A expenses on the Condensed Consolidated Statements of Comprehensive Income. Our sublease arrangements do not contain renewal options or restrictive covenants. We estimate future sublease rental income to be $2.4$3.4 million forin the remainder of 2020, $4.5 million in 2021, $0.7$0.8 million in 2022, $0.6 million in 2023, $0.6 million in 2024 and $0.3 million in 2025. There is no future sublease rental income estimated for the years beyond 2024.
2025.
The maturity analysis below summarizes the remaining future undiscounted cash flows for our operating leases and includes a reconciliation to operating lease liabilities reported on the Condensed Consolidated Balance Sheet:Sheets:
| | | | | |
| As of March 31, 2021 |
2021 (remaining) | $ | 34,460 | |
2022 | 41,041 | |
2023 | 34,700 | |
2024 | 29,684 | |
2025 | 24,681 | |
Thereafter | 63,809 | |
Total future lease payments | 228,375 | |
Less: imputed interest | (36,505) | |
Total | $ | 191,870 | |
|
| | | |
| As of June 30, 2020 |
2020 (remaining) | $ | 21,376 |
|
2021 | 53,585 |
|
2022 | 34,287 |
|
2023 | 28,507 |
|
2024 | 25,239 |
|
Thereafter | 79,045 |
|
Total future lease payments | 242,039 |
|
Less: imputed interest | (40,691 | ) |
Total | $ | 201,348 |
|
The table below includes cash paid for our operating lease liabilities, other non-cash information, our weighted average remaining lease term and weighted average discount rate:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
Cash paid for amounts included in the measurement of operating lease liabilities | | | | | $ | 15,345 | | $ | 13,431 |
| | | | | | | |
Operating lease assets obtained in exchange for lease liabilities | | | | | $ | 680 | | $ | 1,455 |
| | | | | | | |
Weighted average remaining lease term (years) | | | | | | | |
Operating leases | | | | | 6.1 | | 6.5 |
| | | | | | | |
Weighted average discount rate | | | | | | | |
Operating leases | | | | | 5.4 | % | | 5.6 | % |
|
| | | | | | | |
| Six Months Ended June 30, |
| 2020 | | 2019 |
Cash paid for amounts included in the measurement of operating lease liabilities | $ | 26,986 |
| | $ | 23,199 |
|
| | | |
Operating lease assets obtained in exchange for lease liabilities | $ | 11,954 |
| | $ | 19,162 |
|
| | | |
Weighted average remaining lease term (years) | | | |
Operating leases | 6.3 |
| | 6.7 |
|
| | | |
Weighted average discount rate | | | |
Operating leases | 5.5 | % | | 5.6 | % |
On October 26, 2020, the Company entered into a material lease agreement, amending and restating the lease agreement entered into as of August 19, 2020 (the "Lease") for its new principal office space in New York, New York. The Company accepted possession of the premises on April 1, 2021. The Lease shall continue for an initial fixed term of 15 years, subject to 2 renewal options of five years each. Fixed rental payments under the Lease are scheduled to commence in April 2022, payable in monthly installments, and will aggregate approximately $145 million, excluding lease-related incentives, over the term of the Lease. The Lease is not included in operating lease assets and operating lease liabilities on the Condensed Consolidated Balance Sheets as of March 31, 2021 as the Company did not yet have the right to use the premises. 10. Commitments and Contingencies
The Company entered into a material lease agreement for its new principal office space in New York, New York during the year endedDecember 31, 2020. See Note 9, "Leases" for additional information about the terms of the Lease.
We are subject to legal actions arising in the ordinary course of business. In management’s opinion, we believe we have adequate legal defenses and/or insurance coverage with respect to the eventuality of such actions. We do not believe any settlement or judgment relating to any pending legal action would materially affect our financial position or results of operations.
11. Share-Based Compensation
During the sixthree months ended June 30, 2020,March 31, 2021, we granted 128,36656,083 restricted share awards, 28,92726,356 restricted stock units and 108,718103,220 performance stock units.units under the FTI Consulting, Inc. 2017 Omnibus Incentive Compensation Plan, our employee equity compensation plan. Our performance stock units are presented at the maximum potential payout percentage of 150% of target shares granted. These awards are recorded as equity on the Condensed Consolidated Balance Sheets. During the sixthree months ended June 30, 2020, 0 stock options orMarch 31, 2021, 5,711 shares of restricted stock and 0 stock options were forfeited prior to the completion of the applicable vesting requirements. Additionally, 15,400 performance stock units were forfeited during the three months ended March 31, 2021 as the award targets were not achieved.
Total share-based compensation expense, net of forfeitures for the three and six months ended June 30, 2020 and 2019 is detailed in the following table:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
Income Statement Classification | 2020 | | 2019 | | 2020 | | 2019 |
Direct cost of revenues | $ | 2,141 |
| | $ | 2,559 |
| | $ | 7,864 |
| | $ | 7,802 |
|
Selling, general and administrative expenses | 2,725 |
| | 2,698 |
| | 5,936 |
| | 5,130 |
|
Total share-based compensation expense | $ | 4,866 |
|
| $ | 5,257 |
|
| $ | 13,800 |
|
| $ | 12,932 |
|
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
Income Statement Classification | | | | | 2021 | | 2020 |
Direct cost of revenues | | | | | $ | 5,065 | | | $ | 5,723 | |
Selling, general and administrative expenses | | | | | 4,523 | | | 3,211 | |
| | | | | | | |
Total share-based compensation expense | | | | | $ | 9,588 | | | $ | 8,934 | |
12. Stockholders’ Equity
On June 2, 2016, our Board of Directors authorized a stock repurchase program of up to $100.0 million (the “Repurchase Program”). On each of May 18, 2017, December 1, 2017, February 21, 2019 and February 20, 2020, our Board of Directors authorized an additional $100.0 million, respectively. On each of July 28, 2020 and December 3, 2020, our Board of Directors authorized an additional $200.0 million, respectively, increasing the Repurchase Program to an aggregate authorization of $500.0$900.0 million. No time limit has been established for the completion of the Repurchase Program, and the Repurchase Program may be suspended, discontinued or replaced by the Board of Directors at any time without prior notice. As of June 30, 2020,March 31, 2021, we have $65.3$167.1 million available under the Repurchase Program to repurchase additional shares.
The following table details our stock repurchases under the Repurchase Program:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
Shares of common stock repurchased and retired | | | | | 422 | | | 450 | |
Average price paid per share | | | | | $ | 109.37 | | | $ | 111.73 | |
Total cost | | | | | $ | 46,124 | | | $ | 50,301 | |
As we repurchase our common shares, we reduce stated capital on our Condensed Consolidated Balance Sheets for the $0.01 of par value of the shares repurchased, with the excess purchase price over par value recorded as a reduction to additional paid-in capital. If additional paid-in capital is reduced to zero, we record the remainder of the excess purchase price over par value as a reduction of retained earnings. During the three months ended March 31, 2021, due to the volume of repurchases, we
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Shares of common stock repurchased and retired | 471 |
| | 580 |
| | 921 |
| | 908 |
|
Average price paid per share | $ | 108.41 |
| | $ | 83.34 |
| | $ | 110.03 |
| | $ | 77.33 |
|
Total cost | $ | 51,043 |
| | $ | 48,320 |
| | $ | 101,344 |
| | $ | 70,197 |
|
15
recorded a reduction to stated capital for the par value of the shares repurchased, with a portion of the excess purchase price over par value recorded as a reduction to additional paid-in capital of $3.0 million, which reduced additional paid-in capital to 0, and the remainder of the excess purchase price over par value of $43.1 million recorded as a reduction of retained earnings.
Common stock outstanding was 36.734.2 million shares and 37.434.5 million shares as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. Common stock outstanding includes unvested restricted stock awards, which are considered issued and outstanding under the terms of the restricted stock award agreements.
13. Segment Reporting
We manage our business in 5 reportable segments: Corporate Finance, & Restructuring ("Corporate Finance"), Forensic and Litigation Consulting ("FLC"),FLC, Economic Consulting, Technology and Strategic Communications.
Our Corporate Finance segment focuses on the strategic, operational, financial, transactional and capital needs of our clients around the worldworld. Our clients include companies, boards of directors, investors, private equity sponsors, banks, lenders, and deliversother financing sources and creditor groups, as well as other parties-in-interest. We deliver a wide range of service offerings related to restructuring,services centered around 3 core offerings: business transformation, transactions and transactions. Ourturnaround, restructuring practice includes corporate restructuring, including bankruptcy and interim management services. Our business transformation and transactions practices include financial, operational and performance improvement services, as well as due diligence, financing advisory, mergers and acquisitions ("M&A") advisory, M&A integration, carveout support and valuations.bankruptcy.
Our FLC segment provides law firms, companies, government clients and other interested parties with multidisciplinary and independent services related to risk advisory, investigations and disputes. We have expertise in anti-corruption/anti-money laundering investigations and compliance, cybersecurity, data analytics, export controls and sanctions, and monitorship. We offer specialized industry expertise in the areas of insurance, construction, healthcare, environmental and trial services.
Our Economic Consulting segment provides law firms, companies, government entities and other interested parties with analysisa multidisciplinary and independent range of services in risk and investigations and disputes, including a focus on highly regulated industries such as our construction & environmental solutions and health solutions services. These services are supported by our data & analytics services which help our clients analyze large, disparate sets of data related to their business operations and support our clients during regulatory inquiries and commercial disputes. We deliver a wide range of services centered around 5 core offerings: construction & environmental solutions, data & analytics, disputes, health solutions and risk and investigations.
Our Economic Consulting segment, including subsidiary Compass Lexecon LLC, provides law firms, companies, government entities and other interested parties with analyses of complex economic issues for use in legal, regulatory and international arbitration, legal and regulatory proceedings, and strategic decision making and public policy debates in the United States and around the world. We deliver a wide range of services centered around 3 core offerings: antitrust & competition economics, financial economics and international arbitration.
Our Technology segment provides companies, and law firms and government entities with a comprehensive and global portfolio of consulting and services fore-discovery, information governance, privacy and security electronic discovery and insight analytics. Ourcorporate legal operations solutions. We deliver a full spectrum of services including data collection, data processing, document review, hosting, advanced analytics and consulting expertise enablesto help clients to more confidentlysecure, govern, secure, find, analyze and rapidly understand their data in the context of compliance and risk.
Our Strategic Communications segment designsdevelops and executes communications strategies for CEOs,to help management teams, and boards of directors, that help them seize opportunities,law firms, governments and regulators manage change and mitigate risk surrounding transformational and disruptive events, including transactions, investigations, disputes, crises, regulation and legislation. We deliver a wide range of services centered around 3 core offerings: corporate reputation, financial regulatorycommunications and reputational challenges, navigate market disruptions, articulate their corporate brand, stake a competitive position and preserve their freedom to operate.public affairs.
We evaluate the performance of our operating segments based on Adjusted Segment EBITDA, a GAAP financial measure. We define Adjusted Segment EBITDA as a segment’s share of consolidated operating income before depreciation, amortization of intangible assets, remeasurement of acquisition-related contingent consideration, special charges and goodwill impairment charges. We define Total Adjusted Segment EBITDA, which is a non-GAAP financial measure, as the total of Adjusted Segment EBITDA for all segments, which excludes unallocated corporate expenses. We use Adjusted Segment EBITDA as a basis to internally evaluate the financial performance of our segments because we believe it reflects current core operating performance and provides an indicator of the segment’s ability to generate cash.
The table below presents revenues and Adjusted Segment EBITDA for our reportable segments:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Revenues | | | | | | | |
Corporate Finance | $ | 246,011 |
| | $ | 190,003 |
| | $ | 453,760 |
| | $ | 350,969 |
|
FLC | 106,381 |
| | 145,870 |
| | 253,978 |
| | 284,867 |
|
Economic Consulting | 151,493 |
| | 155,502 |
| | 283,631 |
| | 297,773 |
|
Technology | 47,084 |
| | 55,632 |
| | 105,807 |
| | 106,968 |
|
Strategic Communications | 56,883 |
| | 59,112 |
| | 115,269 |
| | 116,816 |
|
Total revenues | $ | 607,852 |
|
| $ | 606,119 |
|
| $ | 1,212,445 |
|
| $ | 1,157,393 |
|
Adjusted Segment EBITDA | | | | | | | |
Corporate Finance | $ | 76,264 |
| | $ | 50,492 |
| | $ | 125,210 |
| | $ | 87,853 |
|
FLC | (9,047 | ) | | 28,241 |
| | 12,161 |
| | 60,058 |
|
Economic Consulting | 21,694 |
| | 23,313 |
| | 34,404 |
| | 47,353 |
|
Technology | 6,435 |
| | 12,875 |
| | 20,919 |
| | 25,598 |
|
Strategic Communications | 10,034 |
| | 10,474 |
| | 18,810 |
| | 22,023 |
|
Total Adjusted Segment EBITDA | $ | 105,380 |
|
| $ | 125,395 |
|
| $ | 211,504 |
|
| $ | 242,885 |
|
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
Revenues | | | | | | | |
Corporate Finance | | | | | $ | 226,203 | | | $ | 207,749 | |
FLC | | | | | 150,821 | | | 147,597 | |
Economic Consulting | | | | | 169,273 | | | 132,138 | |
Technology | | | | | 79,459 | | | 58,723 | |
Strategic Communications | | | | | 60,521 | | | 58,386 | |
Total revenues | | | | | $ | 686,277 | | | $ | 604,593 | |
Adjusted Segment EBITDA | | | | | | | |
Corporate Finance | | | | | $ | 37,439 | | | $ | 48,946 | |
FLC | | | | | 29,432 | | | 21,208 | |
Economic Consulting | | | | | 26,579 | | | 12,710 | |
Technology | | | | | 21,598 | | | 14,484 | |
Strategic Communications | | | | | 10,398 | | | 8,776 | |
Total Adjusted Segment EBITDA | | | | | $ | 125,446 | | | $ | 106,124 | |
The table below reconciles net income to Total Adjusted Segment EBITDA:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
Net income | | | | | $ | 64,496 | | | $ | 56,747 | |
Add back: | | | | | | | |
Income tax provision | | | | | 20,247 | | | 16,465 | |
Interest income and other | | | | | (1,034) | | | (5,017) | |
Interest expense | | | | | 4,797 | | | 4,861 | |
| | | | | | | |
Unallocated corporate expenses | | | | | 26,710 | | | 23,591 | |
Segment depreciation expense | | | | | 7,430 | | | 7,146 | |
Amortization of intangible assets | | | | | 2,800 | | | 2,331 | |
| | | | | | | |
| | | | | | | |
Total Adjusted Segment EBITDA | | | | | $ | 125,446 | | | $ | 106,124 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Net income | $ | 48,174 |
| | $ | 64,598 |
| | $ | 104,921 |
| | $ | 127,243 |
|
Add back: | | | | | | | |
Income tax provision | 14,470 |
| | 21,313 |
| | 30,935 |
| | 41,243 |
|
Interest income and other | (2,202 | ) | | (2,609 | ) | | (7,219 | ) | | (2,768 | ) |
Interest expense | 5,157 |
| | 4,793 |
| | 10,018 |
| | 9,539 |
|
Unallocated corporate expenses | 30,276 |
| | 28,892 |
| | 53,867 |
| | 50,995 |
|
Segment depreciation expense | 7,191 |
| | 6,556 |
| | 14,337 |
| | 12,920 |
|
Amortization of intangible assets | 2,314 |
| | 1,852 |
| | 4,645 |
| | 3,713 |
|
Total Adjusted Segment EBITDA | $ | 105,380 |
|
| $ | 125,395 |
|
| $ | 211,504 |
|
| $ | 242,885 |
|
|
| | | | |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
The following is a discussion and analysis of our consolidated financial condition, results of operations and liquidity and capital resources for the three and six months ended June 30,March 31, 2021 and 2020 and 2019 and significant factors that could affect our prospective financial condition and results of operations. This discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes and with our Annual Report on Form 10-K for the year ended December 31, 20192020 filed with the United States ("U.S.") Securities and Exchange Commission (“SEC”). In addition to historical information, the following discussion includes forward-looking statements based on current expectations that involve risks, uncertainties and assumptions, such as our plans, objectives, expectations and intentions. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, these expectations or any of the forward-looking statements could prove to be incorrect, and actual results could differ materially from those projected or assumed in the forward-looking statements.
BUSINESS OVERVIEW
FTI Consulting, Inc. ("FTI Consulting," "we," "us" or the "Company") is a global business advisory firm dedicated to helping organizations manage change, mitigate risk and resolve disputes: financial, legal, operational, political and& regulatory, reputational and transactional. Individually, each of our segments and practices is staffed with experts recognized for the depth of their knowledge and a track record of making an impact. Collectively, FTI Consulting offers a comprehensive suite of services designed to assist clients across the business cycle, from proactive risk management to rapid response to unexpected events and dynamic environments.
We report financial results for the following five reportable segments:
Our Corporate Finance & Restructuring (“Corporate Finance”) segment focuses on the strategic, operational, financial, transactional and capital needs of our clients around the worldworld. Our clients include companies, boards of directors, investors, private equity sponsors, banks, lenders, and deliversother financing sources and creditor groups, as well as other parties-in-interest. We deliver a wide range of service offerings related to restructuring,services centered around three core offerings: business transformation, transactions and transactions. Ourturnaround, restructuring practice includes corporate restructuring, including bankruptcy and interim management services. Our business transformation and transactions practices include financial, operational and performance improvement services, as well as due diligence, financing advisory, mergers and acquisitions ("M&A") advisory, M&A integration, carveout support and valuations.bankruptcy.
Our Forensic and Litigation Consulting (“FLC”) segment provides law firms, companies, government clientsentities and other interested parties with a multidisciplinary and independent range of services in risk and investigations and disputes, including a focus on highly regulated industries such as our construction & environmental solutions and health solutions services. These services are supported by our data & analytics services which help our clients analyze large, disparate sets of data related to risk advisory, investigationstheir business operations and support our clients during regulatory inquiries and commercial disputes. We have expertise in anti-corruption/anti-money laundering investigationsdeliver a wide range of services centered around five core offerings: construction & environmental solutions, data & analytics, disputes, health solutions and compliance, cybersecurity, data analytics, export controlsrisk and sanctions, and monitorship. We offer specialized industry expertise in the areas of insurance, construction, healthcare, environmental and trial services.investigations.
Our Economic Consulting segment, including subsidiary Compass Lexecon LLC, provides law firms, companies, government entities and other interested parties with analysisanalyses of complex economic issues for use in legal, regulatory and international arbitration, legal and regulatory proceedings, and strategic decision making and public policy debates in the U.S. and around the world. We deliver a wide range of services centered around three core offerings: antitrust & competition economics, financial economics and international arbitration.
Our Technology segment provides companies, and law firms and government entities with a comprehensive and global portfolio of consulting and services fore-discovery, information governance, privacy and security electronic discovery ("e-discovery") and insight analytics. Ourcorporate legal operations solutions. We deliver a full spectrum of services including data collection, data processing, document review, hosting, advanced analytics and consulting expertise enablesto help clients to more confidentlysecure, govern, secure, find, analyze and rapidly understand their data in the context of compliance and risk.
Our Strategic Communications segment designsdevelops and executes communications strategies for CEOs,to help management teams, and boards of directors, that help them seize opportunities,law firms, governments and regulators manage change and mitigate risk surrounding transformational and disruptive events, including transactions, investigations, disputes, crises, regulation and legislation. We deliver a wide range of services centered around three core offerings: corporate reputation, financial regulatorycommunications and reputational challenges, navigate market disruptions, articulate their corporate brand, stake a competitive position and preserve their freedom to operate.public affairs.
We derive substantially all of our revenues from providing professional services to both U.S. and global clients. Most of our services are rendered under time and expense arrangements that obligate the client to pay us a fee for the hours that we incur at agreed-upon rates. Under this arrangement, we typically bill our clients for reimbursable expenses, which may include the cost of producing our work product and other direct expenses that we incur on behalf of the client, such as travel costs. We also render services for which certain clients may be required to pay us a fixed-fee or recurring retainer. These arrangements are generally cancelable at any time. Some of our engagements contain performance-based arrangements in which we earn a contingent or success fee when and if certain predefined outcomes occur. This type of success fee may supplement a time and
expense or fixed-fee arrangement. Success fee revenues may cause variations in our revenues and operating results due to the timing of when achieving the performance-based criteria becomes probable. Seasonal factors, such as the timing of our employees’ and clients’ vacations and holidays, may impact the timing of our revenues across our segments.
In our Technology segment, certain clients are billed based on the amount of data storage used or the volume of information processed. Unit-based revenues are defined as revenues billed on a per item, per page or some otheranother unit-based method and include revenues from data processing and hosting. Unit-based revenues include revenues associated with the software products that are made available to customers via a web browser (“on-demand”). On-demand revenues are charged on a unit or monthly basis and include, but are not limited to, processing and review related functions.
Our financial results are primarily driven by:
•the number, size and type of engagements we secure;
•the rate per hour or fixed charges we charge our clients for services;
•the utilization rates of the revenue-generating professionals we employ;
•the timing of revenue recognition related to revenues subject to certain performance-based contingencies;
•the number of revenue-generating professionals;
•the types of assignments we are working on at different times;
•the length of the billing and collection cycles; and
•the geographic locations of our clients or locations in which services are rendered.
We define acquisition growth as revenues of acquired companies in the first 12 months following the effective date of an acquisition. Our definition of organic growth is the change in revenues, excluding the impact of all such acquisitions.
When significant, we identify the estimated impact of foreign currency (“FX”) driven by our businesses with functional currencies other than the U.S. dollar (“USD”). The estimated impact of FX on the period-to-period performance results is calculated as the difference between the prior period results multiplied by the average FX exchange rates to USD in the current period and the prior period results, multiplied by the average FX exchange rates to USD in the prior period.
Non-GAAP Financial Measures
In the accompanying analysis of financial information, we sometimes use information derived from consolidated and segment financial information that may not be presented in our financial statements or prepared in accordance with generally accepted accounting principles in the United StatesU.S. ("GAAP"). Certain of these financial measures are considered not in conformity with GAAP ("non-GAAP financial measures”) under the SEC rules. Specifically, we have referred to the following non-GAAP financial measures:
•Total Segment Operating Income
•Adjusted EBITDA
•Total Adjusted Segment EBITDA
•Adjusted EBITDA Margin
•Adjusted Net Income
•Adjusted Earnings per Diluted Share
•Free Cash Flow
We have included the definitions of Segment Operating Income (Loss) and Adjusted Segment EBITDA, which are GAAP financial measures, below in order to more fully define the components of certain non-GAAP financial measures in the accompanying analysis of financial information. As described in Note 13, “Segment Reporting” in Part I, Item 1, of this Quarterly Report on Form 10-Q, we evaluate the performance of our operating segments based on Adjusted Segment EBITDA, and Segment Operating Income (Loss) is a component of the definition of Adjusted Segment EBITDA.
We define Segment Operating Income (Loss) as a segment’s share of consolidated operating income. We define Total Segment Operating Income, which is a non-GAAP financial measure, as the total of Segment Operating Income (Loss) for all segments, which excludes unallocated corporate expenses. We use Segment Operating Income (Loss) for the purpose of calculating Adjusted Segment EBITDA. We define Adjusted Segment EBITDA as a segment’s share of consolidated operating
income before depreciation, amortization of intangible assets, remeasurement of acquisition-related contingent consideration, special charges and goodwill impairment charges. We use Adjusted Segment EBITDA as a basis to internally evaluate the financial performance of our segments because we believe it reflects current core operating performance and provides an indicator of the segment’s ability to generate cash. We define Adjusted EBITDA Margin, which is a non-GAAP financial measure, as Adjusted EBITDA as a percentage of total revenues.
We define Total Adjusted Segment EBITDA, which is a non-GAAP financial measure, as the total of Adjusted Segment EBITDA for all segments, which excludes unallocated corporate expenses. We define Adjusted EBITDA, which is a non-GAAP financial measure, as consolidated net income before income tax provision, other non-operating income (expense), depreciation, amortization of intangible assets, remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges, gain or loss on sale of a business and losses on early extinguishment of debt. We believe that these non-GAAP financial measures, when considered together with our GAAP financial results and GAAP financial measures, provide management and investors with a more complete understanding of our operating results, including underlying trends. In addition, EBITDA is a common alternative measure of operating performance used by many of our competitors. It is used by investors, financial analysts, rating agencies and others to value and compare the financial performance of companies in our industry. Therefore, we also believe that these non-GAAP financial measures, considered along with corresponding GAAP financial measures, provide management and investors with additional information for comparison of our operating results with the operating results of other companies. We define Adjusted EBITDA Margin, which is a non-GAAP financial measure, as Adjusted EBITDA as a percentage of total revenues.
We define Adjusted Net Income and Adjusted Earnings per Diluted Share (“Adjusted EPS”), which are non-GAAP financial measures, as net income and earnings per diluted share ("EPS"), respectively, excluding the impact of remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges, losses on early extinguishment of debt, non-cash interest expense on convertible notes and the gain or loss on sale of a business. We use Adjusted Net Income for the purpose of calculating Adjusted EPS. Management uses Adjusted EPS to assess total Company operating performance on a consistent basis. We believe that these non-GAAP financial measures, when considered together with our GAAP financial results and GAAP financial measures, provide management and investors with an additional understanding of our business operating results, including underlying trends.
We define Free Cash Flow, which is a non-GAAP financial measure, as net cash provided by (used in)used in operating activities less cash payments for purchases of property and equipment. We believe this non-GAAP financial measure, when considered together with our GAAP financial results, provides management and investors with an additional understanding of the Company’s ability to generate cash for ongoing business operations and other capital deployment.
Non-GAAP financial measures are not defined in the same manner by all companies and may not be comparable with other similarly titled measures of other companies. Non-GAAP financial measures should be considered in addition to, but not as a substitute for or superior to, the information contained in our Condensed Consolidated Statements of Comprehensive Income and Condensed Consolidated Statements of Cash Flows. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included elsewhere in this report.
EXECUTIVE HIGHLIGHTS
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
| | | | | | | |
| | | (dollar amounts in thousands, except per share data) |
Revenues | | | | | $ | 686,277 | | | $ | 604,593 | |
Net income | | | | | $ | 64,496 | | | $ | 56,747 | |
Adjusted EBITDA | | | | | $ | 99,468 | | | $ | 83,210 | |
Earnings per common share — diluted | | | | | $ | 1.84 | | | $ | 1.49 | |
Adjusted earnings per common share — diluted | | | | | $ | 1.89 | | | $ | 1.53 | |
Net cash used in operating activities | | | | | $ | (166,584) | | | $ | (123,562) | |
Total number of employees | | | | | 6,417 | | | 5,743 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
| (dollar amounts in thousands, except per share data) | | (dollar amounts in thousands, except per share data) |
Revenues | $ | 607,852 |
| | $ | 606,119 |
| | $ | 1,212,445 |
| | $ | 1,157,393 |
|
Net income | $ | 48,174 |
| | $ | 64,598 |
| | $ | 104,921 |
| | $ | 127,243 |
|
Adjusted EBITDA | $ | 75,797 |
| | $ | 97,184 |
| | $ | 159,007 |
| | $ | 193,273 |
|
Earnings per common share — diluted | $ | 1.27 |
| | $ | 1.69 |
| | $ | 2.76 |
| | $ | 3.33 |
|
Adjusted earnings per common share — diluted | $ | 1.32 |
| | $ | 1.73 |
| | $ | 2.85 |
| | $ | 3.36 |
|
Net cash provided by (used in) operating activities | $ | 152,976 |
| | $ | 47,648 |
| | $ | 29,414 |
| | $ | (54,438 | ) |
Total number of employees | 5,813 |
| | 4,999 |
| | 5,813 |
| | 4,999 |
|
SecondFirst Quarter 20202021 Executive Highlights
Revenues
Revenues for the three months ended June 30, 2020March 31, 2021 increased $1.7$81.7 million, or 0.3%13.5%, to $607.9$686.3 million, as compared to the three months ended June 30, 2019,March 31, 2020, which included a 1.3%2.4% estimated negativepositive impact from FX. Acquisition-related revenues contributed $12.4$16.0 million compared to the same quarter in the prior year quarter.year. Excluding the estimated impact from FX and the acquisition-related revenues, revenues decreased $3.1increased $51.0 million, or 0.5%8.4%, primarily due to decreasedincreased demand, particularly in our FLCEconomic Consulting and Technology segments, as well as lower success fees and pass-through revenues, which was partially offset by higher demand for restructuring servicesa $17.5 million decrease in our Corporate Finance segmentpass-through revenues, which includes billable travel and entertainment expenses and media buys, compared to the same quarter in the prior year quarter.year.
Net income
Net income for the three months ended June 30, 2020 decreased $16.4March 31, 2021 increased $7.7 million, or 13.7%, to $48.2$64.5 million, as compared to the three months ended June 30, 2019.March 31, 2020. The decreaseincrease in net income was due to an increase in revenues, which was partially offset by higher compensation expenses, primarily related to an 18.2%a 12.3% increase in billable headcount and higher variable compensation which was partially offset byexpenses, a decline in selling, general and administrative ("SG&A") expenses and a lowerhigher effective tax rate and a decrease in FX remeasurement gains compared to the same quarter in the prior year quarter.year.
Adjusted EBITDA
Adjusted EBITDA for the three months ended June 30, 2020 decreased $21.4March 31, 2021 increased $16.3 million, or 22.0%19.5%, to $75.8$99.5 million, as compared to the three months ended June 30, 2019.March 31, 2020. Adjusted EBITDA Margin of 12.5%14.5% for the three months ended June 30, 2020March 31, 2021 compared with 16.0%13.8% for the three months ended June 30, 2019.March 31, 2020. The decreaseincrease in Adjusted EBITDA was due to an increase in revenues, which was partially offset by higher compensation expenses, primarily related to an 18.2%a 12.3% increase in billable headcount and higher variable compensation which was partially offset by lower SG&A expenses and an increase in revenues, compared to the same quarter in the prior year quarter.year.
EPS and Adjusted EPS
EPS for the three months ended June 30, 2020 decreased $0.42March 31, 2021 increased $0.35 to $1.27$1.84 compared to $1.69$1.49 for the three months ended June 30, 2019.March 31, 2020. The decreaseincrease in EPS was primarily due to the higher operating results described above and a decline in diluted weighted average shares outstanding, which was partially offsetoffset by a lower effective tax rate.FX remeasurement gains.
Adjusted EPS decreased $0.41increased $0.36 to $1.32$1.89 for the three months ended June 30, 2020March 31, 2021 compared to $1.73$1.53 for the three months ended June 30, 2019.March 31, 2020. 2021 Adjusted EPS excludes $2.3 million of non-cash interest expense related to the 2.0% convertible senior notes due 2023 (the "2023 Convertible Notes"), which increased Adjusted EPS by $0.05. 20192020 Adjusted EPS excludes $2.1excluded $2.2 million of non-cash interest expense related to the 2023 Convertible Notes, which increased Adjusted EPS by $0.04.
Liquidity and Capital Allocation
Net cash provided byused in operating activities for the three months ended June 30, 2020March 31, 2021 increased $105.3$43.0 million to $153.0$166.6 million compared with $47.6$123.6 million for the three months ended June 30, 2019.March 31, 2020. The increase in net cash provided byused in operating activities was primarily due to an increase in salaries related to headcount growth and higher cash collections, combined with lower non-compensation-related operating costs,annual bonus payments, which was partially offset by increased cash collections resulting from higher salaries relatedrevenues compared to headcount growth.the same quarter in the prior year. Days sales outstanding (“DSO”) was 98of 97 days at June 30, 2020March 31, 2021 compared to 103104 days at June 30, 2019.March 31, 2020. The decrease in DSO was primarily due to an increase in cash collections, which outpaced the increase in revenues.collections.
Free Cash Flow was an inflowoutflow of $147.3$174.6 million and $37.1$131.8 million for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively. The increase for the three months ended June 30, 2020March 31, 2021 was primarily due to higher net cash provided byused in operating activities, as described above.
Other strategic activities
During the three months ended June 30, 2020,March 31, 2021, we entered into a definitive agreement to acquire certain assets of Delta PartnersThe Rhodes Group, Limited, a leading telecom, media & technology focused strategyconstruction consulting and investment banking firm with offices in Dubai, New York, Singapore, Barcelona, Johannesburg, San FranciscoPittsburgh, Pennsylvania and Sydney.Houston, Texas. The acquisition closedis expected to close during the thirdsecond quarter of 2020.2021.
Coronavirus Disease 2019 ("COVID-19") Pandemic
The COVID-19 pandemic has created global volatility, economic uncertainty and general market disruption. The extent to which COVID-19 will ultimately impact our business is difficult to predict. During the three months ended June 30, 2020, the COVID-19 pandemicdisruption, and it has impacted each of our segments, practices and regions differently. Limitations inDuring the three months ended March 31, 2021, the
COVID-19 pandemic continued to impact our ability to service
our clients due to social distancing, travel restrictions and remote work have negatively impacted our financial results. In addition, we experienced a reduction in demand and delays in our ability to providedeliver certain services due to regulatory moratoriums and postponements of legal proceedings and investigations. These events arising from COVID-19 have negatively impacted our segment results to a varied extent this quarter, particularly our FLC segment. Conversely, restructuring and bankruptcy services provided by our Corporate Finance segment have experienced increased demand as a result of social distancing and quarantine measures put in place to control the adversespread of COVID-19, such as travel restrictions, court closures and government moratoriums on restructuring, which is varied in each region. Evolving business practices as well as fiscal and monetary policies have mitigated the negative economic impact of the COVID-19 pandemic.pandemic in certain key geographies, such as in North America. The increased demand for our restructuringsuccess of vaccination programs around the globe and bankruptcy services may not adequately offset the potential negative impacts ofextent to which the COVID-19 pandemic onwill continue to impact our business in future quarters. and the health and welfare of our employees is difficult to predict.
Headcount
Our total headcount increased 4.4%1.5% from 5,567 at6,321 as of December 31, 20192020 to 5,813 at June 30, 2020.6,417 as of March 31, 2021. The following table includes the net billable headcount additions (reductions), including transfers, for the sixthree months ended June 30, 2020:March 31, 2021:
|
| | | | | | | | | | | | | | | | | |
Billable Headcount | Corporate Finance (1) | | FLC (1) | | Economic Consulting | | Technology | | Strategic Communications | | Total |
December 31, 2019 | 1,194 |
| | 1,351 |
| | 790 |
| | 361 |
| | 728 |
| | 4,424 |
|
Additions, net | 54 |
| | 42 |
| | 20 |
| | 13 |
| | 27 |
| | 156 |
|
March 31, 2020 | 1,248 |
| | 1,393 |
| | 810 |
| | 374 |
| | 755 |
| | 4,580 |
|
Additions (reductions including transfers), net | 114 |
| | (67 | ) | | — |
| | 12 |
| | 6 |
| | 65 |
|
June 30, 2020 | 1,362 |
| | 1,326 |
| | 810 |
| | 386 |
| | 761 |
| | 4,645 |
|
Percentage change in headcount from December 31, 2019 | 14.1 | % | | -1.9 | % | | 2.5 | % | | 6.9 | % | | 4.5 | % | | 5.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Billable Headcount | Corporate Finance | | FLC | | Economic Consulting | | Technology | | Strategic Communications | | Total |
December 31, 2020 | 1,655 | | | 1,343 | | | 891 | | | 408 | | | 770 | | | 5,067 | |
Additions (reductions), net | 29 | | | 24 | | | (1) | | | 15 | | | 8 | | | 75 | |
March 31, 2021 | 1,684 | | | 1,367 | | | 890 | | | 423 | | | 778 | | | 5,142 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Percentage change in headcount from December 31, 2020 | 1.8 | % | | 1.8 | % | | -0.1 | % | | 3.7 | % | | 1.0 | % | | 1.5 | % |
| |
(1)
| There were 66 revenue-generating professionals in Europe, Middle East and Africa (“EMEA”) who moved from FLC to Corporate Finance during the three months ended June 30, 2020. |
CONSOLIDATED RESULTS OF OPERATIONS
Segment and Consolidated Operating Results:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
| | | | | | | |
| | | (in thousands, except per share data) |
Revenues | | | | | | | |
Corporate Finance | | | | | $ | 226,203 | | | $ | 207,749 | |
FLC | | | | | 150,821 | | | 147,597 | |
Economic Consulting | | | | | 169,273 | | | 132,138 | |
Technology | | | | | 79,459 | | | 58,723 | |
Strategic Communications | | | | | 60,521 | | | 58,386 | |
Total revenues | | | | | $ | 686,277 | | | $ | 604,593 | |
Segment operating income | | | | | | | |
Corporate Finance | | | | | $ | 34,299 | | | $ | 46,664 | |
FLC | | | | | 28,006 | | | 19,506 | |
Economic Consulting | | | | | 25,232 | | | 11,396 | |
Technology | | | | | 18,559 | | | 11,589 | |
Strategic Communications | | | | | 9,120 | | | 7,492 | |
Total segment operating income | | | | | 115,216 | | | 96,647 | |
Unallocated corporate expenses | | | | | (26,710) | | | (23,591) | |
Operating income | | | | | 88,506 | | | 73,056 | |
Other income (expense) | | | | | | | |
Interest income and other | | | | | 1,034 | | | 5,017 | |
Interest expense | | | | | (4,797) | | | (4,861) | |
| | | | | | | |
| | | | | (3,763) | | | 156 | |
Income before income tax provision | | | | | 84,743 | | | 73,212 | |
Income tax provision | | | | | 20,247 | | | 16,465 | |
Net income | | | | | $ | 64,496 | | | $ | 56,747 | |
Earnings per common share — basic | | | | | $ | 1.93 | | | $ | 1.56 | |
Earnings per common share — diluted | | | | | $ | 1.84 | | | $ | 1.49 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
| (in thousands, except per share data) | | (in thousands, except per share data) |
Revenues | | | | | | | |
Corporate Finance | $ | 246,011 |
| | $ | 190,003 |
| | $ | 453,760 |
| | $ | 350,969 |
|
FLC | 106,381 |
| | 145,870 |
| | 253,978 |
| | 284,867 |
|
Economic Consulting | 151,493 |
| | 155,502 |
| | 283,631 |
| | 297,773 |
|
Technology | 47,084 |
| | 55,632 |
| | 105,807 |
| | 106,968 |
|
Strategic Communications | 56,883 |
| | 59,112 |
| | 115,269 |
| | 116,816 |
|
Total revenues | $ | 607,852 |
| | $ | 606,119 |
| | $ | 1,212,445 |
| | $ | 1,157,393 |
|
Segment operating income (loss) | | | | | | | |
Corporate Finance | $ | 73,811 |
| | $ | 48,779 |
| | $ | 120,475 |
| | $ | 84,463 |
|
FLC | (10,382 | ) | | 26,779 |
| | 9,124 |
| | 57,219 |
|
Economic Consulting | 20,216 |
| | 21,747 |
| | 31,612 |
| | 44,236 |
|
Technology | 3,432 |
| | 10,550 |
| | 15,021 |
| | 20,986 |
|
Strategic Communications | 8,798 |
| | 9,132 |
| | 16,290 |
| | 19,348 |
|
Total segment operating income | 95,875 |
| | 116,987 |
| | 192,522 |
| | 226,252 |
|
Unallocated corporate expenses | (30,276 | ) | | (28,892 | ) | | (53,867 | ) | | (50,995 | ) |
Operating income | 65,599 |
| | 88,095 |
| | 138,655 |
| | 175,257 |
|
Other income (expense) | | | | | | | |
Interest income and other | 2,202 |
| | 2,609 |
| | 7,219 |
| | 2,768 |
|
Interest expense | (5,157 | ) | | (4,793 | ) | | (10,018 | ) | | (9,539 | ) |
| (2,955 | ) | | (2,184 | ) | | (2,799 | ) | | (6,771 | ) |
Income before income tax provision | 62,644 |
| | 85,911 |
| | 135,856 |
| | 168,486 |
|
Income tax provision | 14,470 |
| | 21,313 |
| | 30,935 |
| | 41,243 |
|
Net income | $ | 48,174 |
| | $ | 64,598 |
| | $ | 104,921 |
| | $ | 127,243 |
|
Earnings per common share — basic | $ | 1.33 |
| | $ | 1.75 |
| | $ | 2.89 |
| | $ | 3.44 |
|
Earnings per common share — diluted | $ | 1.27 |
| | $ | 1.69 |
| | $ | 2.76 |
| | $ | 3.33 |
|
Reconciliation of Net Income to Adjusted EBITDA:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | | Three Months Ended March 31, |
| 2020 | | 2019 | | 2020 | | 2019 | | | 2021 | | 2020 |
| | | | | | | | | | | | |
| (in thousands) | | (in thousands) | | | (in thousands) |
Net income | $ | 48,174 |
| | $ | 64,598 |
| | $ | 104,921 |
| | $ | 127,243 |
| Net income | | $ | 64,496 | | | $ | 56,747 | |
Add back: | | | | | | | | Add back: | | |
Income tax provision | 14,470 |
| | 21,313 |
| | 30,935 |
| | 41,243 |
| Income tax provision | | 20,247 | | | 16,465 | |
Interest income and other | (2,202 | ) | | (2,609 | ) | | (7,219 | ) | | (2,768 | ) | Interest income and other | | (1,034) | | | (5,017) | |
Interest expense | 5,157 |
| | 4,793 |
| | 10,018 |
| | 9,539 |
| Interest expense | | 4,797 | | | 4,861 | |
| Depreciation and amortization | 7,884 |
| | 7,237 |
| | 15,707 |
| | 14,303 |
| Depreciation and amortization | | 8,161 | | | 7,823 | |
Amortization of other intangible assets | 2,314 |
| | 1,852 |
| | 4,645 |
| | 3,713 |
| |
Amortization of intangible assets | | Amortization of intangible assets | | 2,801 | | | 2,331 | |
| Adjusted EBITDA | $ | 75,797 |
| | $ | 97,184 |
| | $ | 159,007 |
| | $ | 193,273 |
| Adjusted EBITDA | | $ | 99,468 | | | $ | 83,210 | |
Reconciliation of Net Income and EPS to Adjusted Net Income and Adjusted EPS:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
| | | | | | | |
| | | (in thousands, except per share data) |
Net income | | | | | $ | 64,496 | | | $ | 56,747 | |
Add back: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Non-cash interest expense on convertible notes | | | | | 2,348 | | | 2,225 | |
Tax impact of non-cash interest expense on convertible notes | | | | | (611) | | | (579) | |
| | | | | | | |
| | | | | | | |
Adjusted Net Income | | | | | $ | 66,233 | | | $ | 58,393 | |
Earnings per common share — diluted | | | | | $ | 1.84 | | | $ | 1.49 | |
Add back: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Non-cash interest expense on convertible notes | | | | | 0.07 | | | 0.06 | |
Tax impact of non-cash interest expense on convertible notes | | | | | (0.02) | | | (0.02) | |
| | | | | | | |
| | | | | | | |
Adjusted earnings per common share — diluted | | | | | $ | 1.89 | | | $ | 1.53 | |
Weighted average number of common shares outstanding — diluted | | | | | 35,063 | | | 38,190 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
| (in thousands, except per share data) | | (in thousands, except per share data) |
Net income | $ | 48,174 |
| | $ | 64,598 |
| | $ | 104,921 |
| | $ | 127,243 |
|
Add back: | | | | | | | |
Non-cash interest expense on convertible notes | 2,255 |
| | 2,137 |
| | 4,480 |
| | 4,245 |
|
Tax impact of non-cash interest expense on convertible notes | (586 | ) | | (556 | ) | | (1,165 | ) | | (1,103 | ) |
Tax impact of gain on sale of business (1) | — |
| | — |
| | — |
| | (2,097 | ) |
Adjusted net income | $ | 49,843 |
| | $ | 66,179 |
| | $ | 108,236 |
| | $ | 128,288 |
|
Earnings per common share — diluted | $ | 1.27 |
| | $ | 1.69 |
| | $ | 2.76 |
| | $ | 3.33 |
|
Add back: | | | | | | | |
Non-cash interest expense on convertible notes | 0.06 |
| | 0.05 |
| | 0.12 |
| | 0.11 |
|
Tax impact of non-cash interest expense on convertible notes | (0.01 | ) | | (0.01 | ) | | (0.03 | ) | | (0.03 | ) |
Tax impact of gain on sale of business (1) | — |
| | — |
| | — |
| | (0.05 | ) |
Adjusted earnings per common share — diluted | $ | 1.32 |
| | $ | 1.73 |
| | $ | 2.85 |
| | $ | 3.36 |
|
Weighted average number of common shares outstanding — diluted | 37,852 |
| | 38,168 |
| | 38,021 |
| | 38,193 |
|
| |
(1)
| For the six months ended June 30, 2019, represents a discrete tax adjustment resulting from a change in estimate related to the accounting for the Ringtail e-discovery software and related business (collectively, "Ringtail") divestiture in 2018. |
Reconciliation of Net Cash Provided by (Used in)Used in Operating Activities to Free Cash Flow:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
| | | | | | | |
| | | (in thousands) |
Net cash used in operating activities | | | | | $ | (166,584) | | | $ | (123,562) | |
Purchases of property and equipment | | | | | (8,001) | | | (8,236) | |
Free Cash Flow | | | | | $ | (174,585) | | | $ | (131,798) | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
| (in thousands) | | (in thousands) |
Net cash provided by (used in) operating activities | $ | 152,976 |
| | $ | 47,648 |
| | $ | 29,414 |
| | $ | (54,438 | ) |
Purchases of property and equipment | (5,663 | ) | | (10,508 | ) | | (13,899 | ) | | (20,661 | ) |
Free Cash Flow | $ | 147,313 |
| | $ | 37,140 |
| | $ | 15,515 |
| | $ | (75,099 | ) |
Three Months Ended June 30, 2020March 31, 2021 Compared with Three Months Ended June 30, 2019March 31, 2020
Revenues and operating income
See “Segment Results”Results” for an expanded discussion of revenues, gross profit and selling, general and administrative ("SG&A&A") expenses.
Unallocated corporate expenses
Unallocated corporate expenses for the three months ended June 30, 2020March 31, 2021 increased $1.4$3.1 million, or 4.8%13.2%, to $30.3$26.7 million compared with $28.9$23.6 million for the three months ended June 30, 2019.March 31, 2020. The increase was primarily due to higher employee-relatedcorporate staff costs due to headcount growth and higher variable executive compensation.
Interest income and other
Interest income and other, which includes FX gains and losses, decreased $0.4$4.0 million to $2.2$1.0 million for the three months ended June 30, 2020March 31, 2021 compared with $2.6$5.0 million for the three months ended June 30, 2019.March 31, 2020. The decrease was primarily due to a $3.4 million decrease in net FX gains.
FX gains and losses, both realized and unrealized, relate to the remeasurement or settlement of monetary assets and liabilities that are denominated in a currency other than an entity’s functional currency. These monetary assets and liabilities include cash, as well as third-party and intercompany receivables and payables.
Interest expense
Interest expense for the three months ended June 30, 2020 increased $0.4March 31, 2021 decreased $0.1 million to $5.2$4.8 million compared with $4.8$4.9 million for the three months ended June 30, 2019.March 31, 2020.
Income tax provision
The effectiveOur income tax rateprovision increased $3.8 million, or 23.0%, to $20.2 million for the three months ended June 30, 2020 of 23.1% compared with 24.8%March 31, 2021 from $16.5 million for the three months ended June 30, 2019. The 2020March 31, 2020. Our effective tax rate was favorably impacted by a discrete tax adjustment related to share-based compensation, lower non-deductible U.S. expenses andof 23.9% for the release of certain valuation allowances on our deferred tax assets.three months ended March 31, 2021 compared with 22.5% for the three months ended March 31, 2020. The tax rate for the three months ended June 30, 2019March 31, 2021 and 2020 was favorably impacted by a discrete tax adjustment related to share-based compensation.
Six Months Ended June 30, 2020 Compared with Six Months Ended June 30, 2019
Revenues and operating income
See “Segment Results” for an expanded discussion of revenues, gross profit and SG&A expenses.
Unallocated corporate expenses
Unallocated corporate expenses for the six months ended June 30, 2020 increased $2.9 million, or 5.6%, to $53.9 million compared with $51.0 million for the six months ended June 30, 2019. The increase was primarily due to higher variable compensation and employee-related costs.
Interest income and other
Interest income and other, which includes FX gains and losses, increased $4.5 million to $7.2 million for the six months ended June 30, 2020 compared with $2.8 million for the six months ended June 30, 2019. The increase in interest income and other for the six months ended June 30, 2020 as compared to the prior year was primarily due to an increase in net FX gains of $4.6 million.
FX gains and losses, both realized and unrealized, relate to the remeasurement or settlement of monetary assets and liabilities that are denominated in a currency other than an entity’s functional currency. These monetary assets and liabilities include cash, as well as third-party and intercompany receivables and payables.
Interest expense
Interest expense for the six months ended June 30, 2020 increased $0.5 million to $10.0 million compared with $9.5 million for the six months ended June 30, 2019.
Income tax provision
The effective income tax rate for the six months ended June 30, 2020 was 22.8% compared with 24.5% for the six months ended June 30, 2019. The 2020 tax rate was favorably impacted by a discrete tax adjustment related to share-based compensation, lower non-deductible U.S. expenses and the release of certain valuation allowances on our deferred tax assets. The tax rate for the six months ended June 30, 2019 was favorably impacted by discrete tax adjustments including a change in estimate related to the accounting for the sale of Ringtail and share-based compensation.
SEGMENT RESULTS
Total Adjusted Segment EBITDA
We evaluate the performance of each of our operating segments based on Adjusted Segment EBITDA, which is a GAAP financial measure. The following table reconciles Net Incomenet income to Total Adjusted Segment EBITDA, a non-GAAP financial measure, for the three and six months ended June 30, 2020March 31, 2021 and 2019:2020:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
| | | | | | | |
| | | (in thousands) |
Net income | | | | | $ | 64,496 | | | $ | 56,747 | |
Add back: | | | | | | | |
Income tax provision | | | | | 20,247 | | | 16,465 | |
Interest income and other | | | | | (1,034) | | | (5,017) | |
Interest expense | | | | | 4,797 | | | 4,861 | |
| | | | | | | |
Unallocated corporate expenses | | | | | 26,710 | | | 23,591 | |
Total segment operating income | | | | | 115,216 | | | 96,647 | |
Add back: | | | | | | | |
Segment depreciation expense | | | | | 7,430 | | | 7,146 | |
Amortization of intangible assets | | | | | 2,800 | | | 2,331 | |
| | | | | | | |
| | | | | | | |
Total Adjusted Segment EBITDA | | | | | $ | 125,446 | | | $ | 106,124 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
| (in thousands) | | (in thousands) |
Net income | $ | 48,174 |
| | $ | 64,598 |
| | $ | 104,921 |
| | $ | 127,243 |
|
Add back: | | | | | | | |
Income tax provision | 14,470 |
| | 21,313 |
| | 30,935 |
| | 41,243 |
|
Interest income and other | (2,202 | ) | | (2,609 | ) | | (7,219 | ) | | (2,768 | ) |
Interest expense | 5,157 |
| | 4,793 |
| | 10,018 |
| | 9,539 |
|
Unallocated corporate expenses | 30,276 |
| | 28,892 |
| | 53,867 |
| | 50,995 |
|
Total segment operating income | 95,875 |
| | 116,987 |
| | 192,522 |
| | 226,252 |
|
Add back: | | | | | | | |
Segment depreciation expense | 7,191 |
| | 6,556 |
| | 14,337 |
| | 12,920 |
|
Amortization of other intangible assets | 2,314 |
| | 1,852 |
| | 4,645 |
| | 3,713 |
|
Total Adjusted Segment EBITDA | $ | 105,380 |
| | $ | 125,395 |
| | $ | 211,504 |
| | $ | 242,885 |
|
Other Segment Operating Data |
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Number of revenue-generating professionals: (at period end) | | | | | | | |
Corporate Finance | 1,362 |
| | 1,011 |
| | 1,362 |
| | 1,011 |
|
FLC | 1,326 |
| | 1,212 |
| | 1,326 |
| | 1,212 |
|
Economic Consulting | 810 |
| | 712 |
| | 810 |
| | 712 |
|
Technology (1) | 386 |
| | 323 |
| | 386 |
| | 323 |
|
Strategic Communications | 761 |
| | 672 |
| | 761 |
| | 672 |
|
Total revenue-generating professionals | 4,645 |
| | 3,930 |
| | 4,645 |
| | 3,930 |
|
Utilization rates of billable professionals: (2) | | | | | | | |
Corporate Finance | 71 | % | | 68 | % | | 70 | % | | 69 | % |
FLC | 46 | % | | 65 | % | | 52 | % | | 66 | % |
Economic Consulting | 73 | % | | 79 | % | | 70 | % | | 78 | % |
Average billable rate per hour: (3) | | | | | | | |
Corporate Finance | $ | 494 |
| | $ | 475 |
| | $ | 473 |
| | $ | 453 |
|
FLC | $ | 327 |
| | $ | 340 |
| | $ | 332 |
| | $ | 337 |
|
Economic Consulting | $ | 508 |
| | $ | 524 |
| | $ | 478 |
| | $ | 501 |
|
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
Number of revenue-generating professionals (at period end): | | | | | | | |
Corporate Finance | | | | | 1,684 | | | 1,248 | |
FLC | | | | | 1,367 | | | 1,393 | |
Economic Consulting | | | | | 890 | | | 810 | |
Technology (1) | | | | | 423 | | | 374 | |
Strategic Communications | | | | | 778 | | | 755 | |
Total revenue-generating professionals | | | | | 5,142 | | | 4,580 | |
Utilization rates of billable professionals: (2) | | | | | | | |
Corporate Finance | | | | | 59 | % | | 69 | % |
FLC | | | | | 60 | % | | 58 | % |
Economic Consulting | | | | | 75 | % | | 68 | % |
Average billable rate per hour: (3) | | | | | | | |
Corporate Finance | | | | | $ | 462 | | | $ | 456 | |
FLC | | | | | $ | 357 | | | $ | 342 | |
Economic Consulting | | | | | $ | 494 | | | $ | 466 | |
(1)The number of revenue-generating professionals for the Technology segment excludes as-needed professionals, who we employ based on demand for the segment’s services. We employed an average of 656 as-needed employees during the three months ended March 31, 2021 compared with 267 as-needed employees during the three months ended March 31, 2020.
(2)We calculate the utilization rate for our billable professionals by dividing the number of hours that all of our billable professionals worked on client assignments during a period by the total available working hours for all of our billable professionals during the same period. Available hours are determined by the standard hours worked by each employee, adjusted for part-time hours, U.S. standard work weeks and local country holidays. Available working hours include vacation and professional training days, but exclude holidays. Utilization rates are presented for our segments that primarily bill clients on an hourly basis. We have not presented utilization rates for our Technology and Strategic Communications segments as most of the revenues of these segments are not generated on an hourly basis.
(3)Average billable rate per hour is calculated by dividing revenues (excluding revenues from success fees, pass-through revenues and outside consultants) for a period by the number of hours worked on client assignments during the same period. We have not presented average billable rates per hour for our Technology and Strategic Communications segments as most of the revenues of these segments are not based on billable hours.
CORPORATE FINANCE & RESTRUCTURING
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
| | | | | | | |
| | | (dollars in thousands, except rate per hour) |
Revenues | | | | | $ | 226,203 | | | $ | 207,749 | |
Percentage change in revenues from prior year | | | | | 8.9 | % | | 29.1 | % |
Operating expenses | | | | | | | |
Direct cost of revenues | | | | | 159,113 | | | 128,604 | |
Selling, general and administrative expenses | | | | | 30,904 | | | 31,178 | |
| | | | | | | |
| | | | | | | |
Amortization of intangible assets | | | | | 1,887 | | | 1,303 | |
| | | | | 191,904 | | | 161,085 | |
Segment operating income | | | | | 34,299 | | | 46,664 | |
Percentage change in segment operating income from prior year | | | | | -26.5 | % | | 30.8 | % |
Add back: | | | | | | | |
Depreciation and amortization of intangible assets | | | | | 3,140 | | | 2,282 | |
| | | | | | | |
Adjusted Segment EBITDA | | | | | $ | 37,439 | | | $ | 48,946 | |
Gross profit (1) | | | | | $ | 67,090 | | | $ | 79,145 | |
Percentage change in gross profit from prior year | | | | | -15.2 | % | | 29.0 | % |
Gross profit margin (2) | | | | | 29.7 | % | | 38.1 | % |
Adjusted Segment EBITDA as a percentage of revenues | | | | | 16.6 | % | | 23.6 | % |
Number of revenue-generating professionals (at period end) | | | | | 1,684 | | | 1,248 | |
Percentage change in number of revenue-generating professionals from prior year | | | | | 34.9 | % | | 27.1 | % |
Utilization rate of billable professionals | | | | | 59 | % | | 69 | % |
Average billable rate per hour | | | | | $ | 462 | | | $ | 456 | |
| |
(1)
| The number of revenue-generating professionals for the Technology segment excludes as-needed professionals who we employ based on demand for the segment’s services. We employed an average of 224 as-needed employees during the three months ended June 30, 2020 compared with 312 as-needed employees during the three months ended June 30, 2019. |
| |
(2)
| We calculate the utilization rate for our billable professionals by dividing the number of hours that all of our billable professionals worked on client assignments during a period by the total available working hours for all of our billable professionals during the same period. Available hours are determined by the standard hours worked by each employee, adjusted for part-time hours, U.S. standard work weeks and local country holidays. Available working hours include vacation and professional training days, but exclude holidays. Utilization rates are presented for our segments that primarily bill clients on an hourly basis. We have not presented utilization rates for our Technology and Strategic Communications segments as most of the revenues of these segments are not generated on an hourly basis. |
| |
(3)
| For engagements where revenues are based on number of hours worked by our billable professionals, average billable rate per hour is calculated by dividing revenues (excluding revenues from success fees, pass-through revenues and outside consultants) for a period by the number of hours worked on client assignments during the same period. We have not presented average billable rates per hour for our Technology and Strategic Communications segments as most of the revenues of these segments are not based on billable hours. |
CORPORATE FINANCE & RESTRUCTURING |
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
| (dollars in thousands, except rate per hour) | | (dollars in thousands, except rate per hour) |
Revenues | $ | 246,011 |
| | $ | 190,003 |
| | $ | 453,760 |
| | $ | 350,969 |
|
Percentage change in revenues from prior year | 29.5 | % | | 34.4 | % | | 29.3 | % | | 23.5 | % |
Operating expenses | | | | | | | |
Direct cost of revenues | 143,265 |
| | 112,489 |
| | 271,869 |
| | 212,114 |
|
Selling, general and administrative expenses | 27,520 |
| | 27,969 |
| | 58,698 |
| | 52,859 |
|
Amortization of other intangible assets | 1,415 |
| | 766 |
| | 2,718 |
| | 1,533 |
|
| 172,200 |
| | 141,224 |
| | 333,285 |
| | 266,506 |
|
Segment operating income | 73,811 |
| | 48,779 |
| | 120,475 |
| | 84,463 |
|
Percentage change in segment operating income from prior year | 51.3 | % | | 43.3 | % | | 42.6 | % | | 25.6 | % |
Add back: | | | | | | | |
Depreciation and amortization of intangible assets | 2,453 |
| | 1,713 |
| | 4,735 |
| | 3,390 |
|
Adjusted Segment EBITDA | $ | 76,264 |
| | $ | 50,492 |
| | $ | 125,210 |
| | $ | 87,853 |
|
Gross profit (1) | $ | 102,746 |
| | $ | 77,514 |
| | $ | 181,891 |
| | $ | 138,855 |
|
Percentage change in gross profit from prior year | 32.6 | % | | 36.2 | % | | 31.0 | % | | 22.6 | % |
Gross profit margin (2) | 41.8 | % | | 40.8 | % | | 40.1 | % | | 39.6 | % |
Adjusted Segment EBITDA as a percent of revenues | 31.0 | % | | 26.6 | % | | 27.6 | % | | 25.0 | % |
Number of revenue-generating professionals (at period end) | 1,362 |
| | 1,011 |
| | 1,362 |
| | 1,011 |
|
Percentage change in number of revenue-generating professionals from prior year | 34.7 | % | | 16.1 | % | | 34.7 | % | | 16.1 | % |
Utilization rates of billable professionals | 71 | % | | 68 | % | | 70 | % | | 69 | % |
Average billable rate per hour | $ | 494 |
| | $ | 475 |
| | $ | 473 |
| | $ | 453 |
|
| |
(1)
| Revenues less direct cost of revenues |
| |
(2)
| Gross profit as a percentage of revenues |
(1)Revenues less direct cost of revenues
(2)Gross profit as a percentage of revenues
Three Months Ended June 30, 2020March 31, 2021 Compared with Three Months Ended June 30, 2019March 31, 2020
Revenues increased $56.0$18.5 million, or 29.5%8.9%, to $246.0$226.2 million for the three months ended June 30, 2020,March 31, 2021, which included a 1.2%2.0% estimated negativepositive impact from FX. Acquisition-related revenues contributed $12.4$16.0 million, or 6.5%7.7% of the increase, compared to the same quarter in the prior year period.year. Excluding the estimated impact from FX and the acquisition-related revenues, revenues increased $45.9decreased $1.6 million, or 24.1%0.8%, primarily due to increaseda $9.3 million decline in pass-through revenues and lower demand and higher realized pricing related to the mix of client engagements and staffing acrossfor restructuring services in North America, as well as higherwhich was partially offset by increased demand and realized bill rates for ourtransaction services, largely in North America and Europe, the Middle East and Africa (“EMEA”).
Gross profit decreased $12.1 million, or 15.2%, to $67.1 million for the three months ended March 31, 2021. Gross profit margin decreased 8.4 percentage points for the three months ended March 31, 2021. The decrease in gross profit margin was primarily due to a 10 percentage point decline in utilization, primarily in restructuring, services in EMEA, which was partially offset by a $13.2 million decrease in success fees andsmaller proportion of lower realized pricing for our business transformation and transactions services compared to the prior year period.margin pass-through revenues.
Gross profit increased $25.2SG&A expenses decreased $0.3 million, or 32.6%0.9%, to $102.7$30.9 million for the three months ended June 30, 2020. Gross profit margin increased 1.0 percentage pointMarch 31, 2021, which included a 2.6% estimated negative impact from FX. SG&A expenses of 13.7% of revenues for the three months ended June 30,March 31, 2021 compared with 15.0% of revenues for the three months ended March 31, 2020. The decrease in SG&A expenses was primarily due to lower business development and travel and entertainment expenses, which were partially offset by SG&A expenses from a prior acquisition.
FORENSIC AND LITIGATION CONSULTING
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
| | | | | | | |
| | | (dollars in thousands, except rate per hour) |
Revenues | | | | | $ | 150,821 | | | $ | 147,597 | |
Percentage change in revenues from prior year | | | | | 2.2 | % | | 6.2 | % |
Operating expenses | | | | | | | |
Direct cost of revenues | | | | | 99,287 | | | 101,831 | |
Selling, general and administrative expenses | | | | | 23,354 | | | 25,974 | |
| | | | | | | |
| | | | | | | |
Amortization of intangible assets | | | | | 174 | | | 286 | |
| | | | | 122,815 | | | 128,091 | |
Segment operating income | | | | | 28,006 | | | 19,506 | |
Percentage change in segment operating income from prior year | | | | | 43.6 | % | | -35.9 | % |
Add back: | | | | | | | |
Depreciation and amortization of intangible assets | | | | | 1,426 | | | 1,702 | |
| | | | | | | |
Adjusted Segment EBITDA | | | | | $ | 29,432 | | | $ | 21,208 | |
Gross profit (1) | | | | | $ | 51,534 | | | $ | 45,766 | |
Percentage change in gross profit from prior year | | | | | 12.6 | % | | -16.6 | % |
Gross profit margin (2) | | | | | 34.2 | % | | 31.0 | % |
Adjusted Segment EBITDA as a percentage of revenues | | | | | 19.5 | % | | 14.4 | % |
Number of revenue-generating professionals (at period end) | | | | | 1,367 | | | 1,393 | |
Percentage change in number of revenue-generating professionals from prior year | | | | | -1.9 | % | | 16.7 | % |
Utilization rate of billable professionals | | | | | 60 | % | | 58 | % |
Average billable rate per hour | | | | | $ | 357 | | | $ | 342 | |
(1)Revenues less direct cost of revenues
(2)Gross profit as a percentage of revenues
Three Months Ended March 31, 2021 Compared with Three Months Ended March 31, 2020
Revenues increased $3.2 million, or 2.2%, to $150.8 million for the three months ended March 31, 2021, which included a 1.9% estimated positive impact from FX. Excluding the estimated impact from FX, revenues increased $0.4 million, or 0.3%, primarily due to higher demand for our health solutions and investigations services, which was partially offset by a $4.2 million decline in pass-through revenues and lower realized bill rates for our data & analytics services.
Gross profit increased $5.8 million, or 12.6%, to $51.5 million for the three months ended March 31, 2021. Gross profit margin increased 3.2 percentage points for the three months ended March 31, 2021. The increase in gross profit margin was largely related to a smaller proportion of lower margin pass-through revenues as well as higher utilization in our disputes, health solutions and investigations services.
SG&A expenses decreased $2.6 million, or 10.1%, to $23.4 million for the three months ended March 31, 2021, which included a 1.9% estimated negative impact from FX. SG&A expenses of 15.5% of revenues for the three months ended March 31, 2021 compared with 17.6% of revenues for the three months ended March 31, 2020. The decrease in SG&A expenses was primarily driven by lower travel and entertainment and other general and administrative expenses.
ECONOMIC CONSULTING
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
| | | | | | | |
| | | (dollars in thousands, except rate per hour) |
Revenues | | | | | $ | 169,273 | | | $ | 132,138 | |
Percentage change in revenues from prior year | | | | | 28.1 | % | | -7.1 | % |
Operating expenses | | | | | | | |
Direct cost of revenues | | | | | 125,141 | | | 100,993 | |
Selling, general and administrative expenses | | | | | 18,900 | | | 19,705 | |
| | | | | | | |
Amortization of intangible assets | | | | | — | | | 44 | |
| | | | | 144,041 | | | 120,742 | |
Segment operating income | | | | | 25,232 | | | 11,396 | |
Percentage change in segment operating income from prior year | | | | | 121.4 | % | | -49.3 | % |
Add back: | | | | | | | |
Depreciation and amortization of intangible assets | | | | | 1,347 | | | 1,314 | |
| | | | | | | |
Adjusted Segment EBITDA | | | | | $ | 26,579 | | | $ | 12,710 | |
Gross profit (1) | | | | | $ | 44,132 | | | $ | 31,145 | |
Percentage change in gross profit from prior year | | | | | 41.7 | % | | -23.1 | % |
Gross profit margin (2) | | | | | 26.1 | % | | 23.6 | % |
Adjusted Segment EBITDA as a percentage of revenues | | | | | 15.7 | % | | 9.6 | % |
Number of revenue-generating professionals (at period end) | | | | | 890 | | | 810 | |
Percentage change in number of revenue-generating professionals from prior year | | | | | 9.9 | % | | 13.3 | % |
Utilization rate of billable professionals | | | | | 75 | % | | 68 | % |
Average billable rate per hour | | | | | $ | 494 | | | $ | 466 | |
(1)Revenues less direct cost of revenues
(2)Gross profit as a percentage of revenues
Three Months Ended March 31, 2021 Compared with Three Months Ended March 31, 2020
Revenues increased $37.1 million, or 28.1%, to $169.3 million for the three months ended March 31, 2021, which included a 2.8% estimated positive impact from FX. Excluding the estimated impact of FX, revenues increased $33.5 million, or 25.3%, primarily due to higher demand for our non-M&A-related antitrust and M&A-related antitrust services, as well as higher realized rates and demand for international arbitration services.
Gross profit increased $13.0 million, or 41.7%, to $44.1 million for the three months ended March 31, 2021. Gross profit margin increased 2.5 percentage points for the three months ended March 31, 2021. The increase in gross profit margin was primarily due to increaseda 7 percentage point improvement in utilization and higher realized pricing for our restructuring services,bill rates, which was partially offset by lower utilization for our business transformation and transactions services,higher variable compensation as well as lower success fees across our business.a percentage of revenues.
SG&A expenses decreased $0.4$0.8 million, or 1.6%4.1%, to $27.5$18.9 million for the three months ended June 30, 2020,March 31, 2021, which included a 1.7%3.4% estimated favorablenegative impact from FX. SG&A expenses of 11.2% of revenues for the three months ended June 30, 2020March 31, 2021 compared with 14.7%14.9% of revenues for the three months ended June 30, 2019. The decrease in SG&A expenses was primarily due to reduced travel and entertainment expenses, which was partially offset by acquisition-related expenses.
Six Months Ended June 30, 2020 Compared with Six Months Ended June 30, 2019
Revenues increased $102.8 million, or 29.3%, to $453.8 million for the six months ended June 30, 2020, which included a 1.1% estimated negative impact from FX. Acquisition-related revenues contributed $25.9 million, or 7.4% of the increase, compared to the prior year period. Excluding the estimated impact from FX and the acquisition-related revenues, revenues increased $80.9 million, or 23.0%, primarily due to increased demand for our restructuring services in North America and EMEA and higher demand for our business transformation and transactions services, which was partially offset by a $12.9 million decrease in success fees compared to the prior year period.
Gross profit increased $43.0 million, or 31.0%, to $181.9 million for the six months ended June 30,March 31, 2020. Gross profit margin increased 0.5 percentage points for the six months ended June 30, 2020. The increase in gross profit margin was primarily due to higher realized pricing and increased utilization for our restructuring services, which was partially offset by lower utilization for our business transformation and transactions services, as well as lower success fees across our business.
SG&A expenses increased $5.8 million, or 11.0%, to $58.7 million for the six months ended June 30, 2020, which included a 1.4% estimated favorable impact from FX. SG&A expenses of 12.9% of revenues for the six months ended June 30, 2020 compared with 15.1% of revenues for the six months ended June 30, 2019. The increase in SG&A expenses was primarily due to acquisition-related expenses and higher infrastructure support costs, largely related to an increase in headcount, which was partially offset by lower travel and entertainment expenses.
FORENSIC AND LITIGATION CONSULTING |
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
| (dollars in thousands, except rate per hour) | | (dollars in thousands, except rate per hour) |
Revenues | $ | 106,381 |
| | $ | 145,870 |
| | $ | 253,978 |
| | $ | 284,867 |
|
Percentage change in revenues from prior year | -27.1 | % | | 9.2 | % | | -10.8 | % | | 8.9 | % |
Operating expenses | | | | | | | |
Direct cost of revenues | 92,001 |
| | 89,891 |
| | 193,832 |
| | 173,994 |
|
Selling, general and administrative expenses | 24,592 |
| | 28,912 |
| | 50,566 |
| | 53,075 |
|
Amortization of other intangible assets | 170 |
| | 288 |
| | 456 |
| | 579 |
|
| 116,763 |
| | 119,091 |
| | 244,854 |
| | 227,648 |
|
Segment operating income (loss) | (10,382 | ) | | 26,779 |
| | 9,124 |
| | 57,219 |
|
Percentage change in segment operating income from prior year | -138.8 | % | | 2.3 | % | | -84.1 | % | | 13.3 | % |
Add back: | | | | | | | |
Depreciation and amortization of intangible assets | 1,335 |
| | 1,462 |
| | 3,037 |
| | 2,839 |
|
Adjusted Segment EBITDA | $ | (9,047 | ) | | $ | 28,241 |
| | $ | 12,161 |
| | $ | 60,058 |
|
Gross profit (1) | $ | 14,380 |
| | $ | 55,979 |
| | $ | 60,146 |
| | $ | 110,873 |
|
Percentage change in gross profit from prior year | -74.3 | % | | 12.3 | % | | -45.8 | % | | 14.2 | % |
Gross profit margin (2) | 13.5 | % | | 38.4 | % | | 23.7 | % | | 38.9 | % |
Adjusted Segment EBITDA as a percent of revenues | -8.5 | % | | 19.4 | % | | 4.8 | % | | 21.1 | % |
Number of revenue-generating professionals (at period end) | 1,326 |
| | 1,212 |
| | 1,326 |
| | 1,212 |
|
Percentage change in number of revenue-generating professionals from prior year | 9.4 | % | | 13.8 | % | | 9.4 | % | | 13.8 | % |
Utilization rates of billable professionals | 46 | % | | 65 | % | | 52 | % | | 66 | % |
Average billable rate per hour | $ | 327 |
| | $ | 340 |
| | $ | 332 |
| | $ | 337 |
|
| |
(1)
| Revenues less direct cost of revenues |
| |
(2)
| Gross profit as a percentage of revenues |
Three Months Ended June 30, 2020 Compared with Three Months Ended June 30, 2019
Revenues decreased $39.5 million, or 27.1%, to $106.4 million for the three months ended June 30, 2020, which included a 1.4% estimated negative impact from FX. Excluding the estimated negative impact from FX, revenues decreased $37.5 million, or 25.7%, due to decreased demand for all of our services, particularly for our investigations and disputes services.
Gross profit decreased $41.6 million, or 74.3%, to $14.4 million for the three months ended June 30, 2020. Gross profit margin decreased 24.9 percentage points for the three months ended June 30, 2020. The decrease in gross profit margin was largely related to a 19 percentage point decline in utilization coupled with higher employee-related costs due to a 9.4% increase in headcount.
SG&A expenses decreased $4.3 million, or 14.9%, to $24.6 million for the three months ended June 30, 2020, which included a 1.0% estimated favorable impact from FX. SG&A expenses of 23.1% of revenues for the three months ended June 30, 2020 compared with 19.8% of revenues for the three months ended June 30, 2019. The decrease in SG&A expenses was primarily driven by lower travel and entertainment expenses, hiring costs, marketing and business development expenses.
Six Months Ended June 30, 2020 Compared with Six Months Ended June 30, 2019
Revenues decreased $30.9 million, or 10.8%, to $254.0 million for the six months ended June 30, 2020, which included a 1.1% estimated negative impact from FX. Excluding the estimated negative impact from FX, revenues decreased $27.9 million, or 9.8%, primarily due to decreased demand for our investigations, disputes and health solutions services.
Gross profit decreased $50.7 million, or 45.8%, to $60.1 million for the six months ended June 30, 2020. Gross profit margin decreased 15.2 percentage points for the six months ended June 30, 2020. The decrease in gross profit margin was largely related to a 14 percentage point decline in utilization, coupled with higher employee-related costs due to increased headcount.
SG&A expenses decreased $2.5 million, or 4.7%, to $50.6 million for the six months ended June 30, 2020. SG&A expenses of 19.9% of revenues for the six months ended June 30, 2020 compared with 18.6% of revenues for the six months ended June 30, 2019. The decrease in SG&A expenses was primarily driven by lower travel and entertainment and hiring costs,other general and administrative expenses, which was partially offset by higher infrastructure support costs largely related to an increase in headcount.
ECONOMIC CONSULTINGbad debt expense.
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
| (dollars in thousands, except rate per hour) | | (dollars in thousands, except rate per hour) |
Revenues | $ | 151,493 |
| | $ | 155,502 |
| | $ | 283,631 |
| | $ | 297,773 |
|
Percentage change in revenues from prior year | -2.6 | % | | 16.6 | % | | -4.7 | % | | 11.8 | % |
Operating expenses | | | | | | | |
Direct cost of revenues | 110,293 |
| | 115,858 |
| | 211,286 |
| | 217,621 |
|
Selling, general and administrative expenses | 20,939 |
| | 17,852 |
| | 40,644 |
| | 35,827 |
|
Amortization of other intangible assets | 45 |
| | 45 |
| | 89 |
| | 89 |
|
| 131,277 |
| | 133,755 |
| | 252,019 |
| | 253,537 |
|
Segment operating income | 20,216 |
| | 21,747 |
| | 31,612 |
| | 44,236 |
|
Percentage change in segment operating income from prior year | -7.0 | % | | 55.1 | % | | -28.5 | % | | 39.7 | % |
Add back: | | | | | | | |
Depreciation and amortization of intangible assets | 1,478 |
| | 1,566 |
| | 2,792 |
| | 3,117 |
|
Adjusted Segment EBITDA | $ | 21,694 |
| | $ | 23,313 |
| | $ | 34,404 |
| | $ | 47,353 |
|
Gross profit (1) | $ | 41,200 |
| | $ | 39,644 |
| | $ | 72,345 |
| | $ | 80,152 |
|
Percentage change in gross profit from prior year | 3.9 | % | | 19.6 | % | | -9.7 | % | | 16.8 | % |
Gross profit margin (2) | 27.2 | % | | 25.5 | % | | 25.5 | % | | 26.9 | % |
Adjusted Segment EBITDA as a percent of revenues | 14.3 | % | | 15.0 | % | | 12.1 | % | | 15.9 | % |
Number of revenue-generating professionals (at period end) | 810 |
| | 712 |
| | 810 |
| | 712 |
|
Percentage change in number of revenue-generating professionals from prior year | 13.8 | % | | 2.4 | % | | 13.8 | % | | 2.4 | % |
Utilization rates of billable professionals | 73 | % | | 79 | % | | 70 | % | | 78 | % |
Average billable rate per hour | $ | 508 |
| | $ | 524 |
| | $ | 478 |
| | $ | 501 |
|
TECHNOLOGY
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
| | | | | | | |
| | | (dollars in thousands) |
Revenues | | | | | $ | 79,459 | | | $ | 58,723 | |
Percentage change in revenues from prior year | | | | | 35.3 | % | | 14.4 | % |
Operating expenses | | | | | | | |
Direct cost of revenues | | | | | 45,557 | | | 33,177 | |
Selling, general and administrative expenses | | | | | 15,343 | | | 13,957 | |
| | | | | | | |
| | | | | | | |
| | | | | 60,900 | | | 47,134 | |
Segment operating income | | | | | 18,559 | | | 11,589 | |
Percentage change in segment operating income from prior year | | | | | 60.1 | % | | 11.0 | % |
Add back: | | | | | | | |
Depreciation and amortization of intangible assets | | | | | 3,039 | | | 2,895 | |
| | | | | | | |
Adjusted Segment EBITDA | | | | | $ | 21,598 | | | $ | 14,484 | |
Gross profit (1) | | | | | $ | 33,902 | | | $ | 25,546 | |
Percentage change in gross profit from prior year | | | | | 32.7 | % | | 12.1 | % |
Gross profit margin (2) | | | | | 42.7 | % | | 43.5 | % |
Adjusted Segment EBITDA as a percentage of revenues | | | | | 27.2 | % | | 24.7 | % |
Number of revenue-generating professionals (at period end) (3) | | | | | 423 | | | 374 | |
Percentage change in number of revenue-generating professionals from prior year | | | | | 13.1 | % | | 18.7 | % |
| |
(1)
| Revenues less direct cost of revenues |
| |
(2)
| Gross profit as a percentage of revenues |
(1)Revenues less direct cost of revenues
(2)Gross profit as a percentage of revenues
(3)Includes personnel involved in direct client assistance and revenue-generating consultants and excludes professionals employed on an as-needed basis.
Three Months Ended June 30, 2020March 31, 2021 Compared with Three Months Ended June 30, 2019March 31, 2020
Revenues decreased $4.0increased $20.7 million, or 2.6%35.3%, to $151.5$79.5 million for the three months ended June 30, 2020,March 31, 2021, which included a 1.0%2.9% estimated negativepositive impact from FX. Excluding the estimated negative impact offrom FX, revenues decreased $2.5increased $19.0 million, or 1.6%32.4%, primarily due to lowerincreased demand for financial economicsour managed review, hosting and non-M&A-related antitrustconsulting services, along with lower realized pricing for our non-M&A-related antitrust services and international arbitration, which was partially offset by higher demand forlargely related to M&A-related antitrust services."second request" engagements.
Gross profit increased $1.6$8.4 million, or 3.9%32.7%, to $41.2$33.9 million for the three months ended June 30, 2020.March 31, 2021. Gross profit margin increased 1.7decreased 0.8 percentage points for the three months ended June 30, 2020. The increase in gross profit margin was primarily due to lower variable compensation as a percentage of revenues, which was partially offset by lower utilization.
SG&A expenses increased $3.1 million, or 17.3%, to $20.9 million for the three months ended June 30, 2020. SG&A expenses of 13.8% of revenues for the three months ended June 30, 2020 compared with 11.5% of revenues for the three months ended June 30, 2019. The increase in SG&A expenses was primarily driven by an increase in bad debt expense, which was partially offset by lower travel and entertainment expenses.
Six Months Ended June 30, 2020 Compared with Six Months Ended June 30, 2019
Revenues decreased $14.1 million, or 4.7%, to $283.6 million for the six months ended June 30, 2020. The decrease was primarily due to lower demand for financial economics and non-M&A-related antitrust services, along with lower realized pricing for our non-M&A-related antitrust and international arbitration services, which was partially offset by higher demand for our M&A-related antitrust services, along with higher realized pricing for our financial economics services.
Gross profit decreased $7.8 million, or 9.7%, to $72.3 million for the six months ended June 30, 2020. Gross profit margin decreased 1.4 percentage points for the six months ended June 30, 2020.March 31, 2021. The decrease in gross profit margin was primarily due to an unfavorable mix and lower utilizationprofitability for our consulting and realized pricing, as well ashosting services, which was partially offset by a favorable mix and higher employee-related costs due to increased headcount.profitability for our review and processing services.
SG&A expenses increased $4.8$1.4 million, or 13.4%9.9%, to $40.6$15.3 million for the sixthree months ended June 30, 2020.March 31, 2021, which included a 2.1% estimated negative impact from FX. SG&A expenses of 14.3%19.3% of revenues for the sixthree months ended June 30, 2020March 31, 2021 compared with 12.0%23.8% of revenues for the sixthree months ended June 30, 2019.March 31, 2020. The increase in SG&A expenses was primarily driven by higher bad debt expense and an increase in rentother general and occupancyadministrative expenses.
TECHNOLOGY
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
| (dollars in thousands) | | (dollars in thousands) |
Revenues | $ | 47,084 |
| | $ | 55,632 |
| | $ | 105,807 |
| | $ | 106,968 |
|
Percentage change in revenues from prior year | -15.4 | % | | 19.8 | % | | -1.1 | % | | 22.5 | % |
Operating expenses | | | | | | | |
Direct cost of revenues | 30,531 |
| | 31,482 |
| | 63,708 |
| | 60,026 |
|
Selling, general and administrative expenses | 13,121 |
| | 13,600 |
| | 27,078 |
| | 25,956 |
|
| 43,652 |
| | 45,082 |
| | 90,786 |
| | 85,982 |
|
Segment operating income | 3,432 |
| | 10,550 |
| | 15,021 |
| | 20,986 |
|
Percentage change in segment operating income from prior year | -67.5 | % | | 165.9 | % | | -28.4 | % | | 219.9 | % |
Add back: | | | | | | | |
Depreciation and amortization of intangible assets | 3,003 |
| | 2,325 |
| | 5,898 |
| | 4,612 |
|
Adjusted Segment EBITDA | $ | 6,435 |
| | $ | 12,875 |
| | $ | 20,919 |
| | $ | 25,598 |
|
Gross profit (1) | $ | 16,553 |
| | $ | 24,150 |
| | $ | 42,099 |
| | $ | 46,942 |
|
Percentage change in gross profit from prior year | -31.5 | % | | 23.6 | % | | -10.3 | % | | 31.1 | % |
Gross profit margin (2) | 35.2 | % | | 43.4 | % | | 39.8 | % | | 43.9 | % |
Adjusted Segment EBITDA as a percent of revenues | 13.7 | % | | 23.1 | % | | 19.8 | % | | 23.9 | % |
Number of revenue-generating professionals (at period end) (3) | 386 |
| | 323 |
| | 386 |
| | 323 |
|
Percentage change in number of revenue-generating professionals from prior year | 19.5 | % | | 10.2 | % | | 19.5 | % | | 10.2 | % |
STRATEGIC COMMUNICATIONS
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
| | | | | | | |
| | | (dollars in thousands) |
Revenues | | | | | $ | 60,521 | | | $ | 58,386 | |
Percentage change in revenues from prior year | | | | | 3.7 | % | | 1.2 | % |
Operating expenses | | | | | | | |
Direct cost of revenues | | | | | 39,326 | | | 37,640 | |
Selling, general and administrative expenses | | | | | 11,336 | | | 12,556 | |
| | | | | | | |
| | | | | | | |
Amortization of intangible assets | | | | | 739 | | | 698 | |
| | | | | 51,401 | | | 50,894 | |
Segment operating income | | | | | 9,120 | | | 7,492 | |
Percentage change in segment operating income from prior year | | | | | 21.7 | % | | -26.7 | % |
Add back: | | | | | | | |
Depreciation and amortization of intangible assets | | | | | 1,278 | | | 1,284 | |
| | | | | | | |
| | | | | | | |
Adjusted Segment EBITDA | | | | | $ | 10,398 | | | $ | 8,776 | |
Gross profit (1) | | | | | $ | 21,195 | | | $ | 20,746 | |
Percentage change in gross profit from prior year | | | | | 2.2 | % | | -8.5 | % |
Gross profit margin (2) | | | | | 35.0 | % | | 35.5 | % |
Adjusted Segment EBITDA as a percentage of revenues | | | | | 17.2 | % | | 15.0 | % |
Number of revenue-generating professionals (at period end) | | | | | 778 | | | 755 | |
Percentage change in number of revenue-generating professionals from prior year | | | | | 3.0 | % | | 14.7 | % |
| |
(1)
| Revenues less direct cost of revenues |
| |
(2)
| Gross profit as a percentage of revenues |
| |
(3)
| Includes personnel involved in direct client assistance and revenue-generating consultants and excludes professionals employed on an as-needed basis. |
(1)Revenues less direct cost of revenues
(2)Gross profit as a percentage of revenues
Three Months Ended June 30, 2020March 31, 2021 Compared with Three Months Ended June 30, 2019March 31, 2020
Revenues decreased $8.5increased $2.1 million, or 15.4%3.7%, to $47.1$60.5 million for the three months ended June 30, 2020,March 31, 2021, which included a 1.0%4.2% estimated negativepositive impact from FX. Excluding the estimated negativepositive impact fromof FX, revenues decreased $8.0$0.3 million, or 14.4%,primarily due to decreased demand for our managed review services, primarily related to litigation and global cross-border investigations services that required on site work, as well as lowera $2.2 million decline in pass-through revenues, related to the completion of our transition services associated with the Ringtail divestiture, which was partiallylargely offset by growth in project-based revenues, primarily driven by higher demand for consulting services, primarily related to information governance and litigationour public affairs services.
Gross profit decreased $7.6increased $0.4 million, or 31.5%2.2%, to $16.6$21.2 million for the three months ended June 30, 2020.March 31, 2021. Gross profit margin decreased by 8.30.5 percentage points for the three months ended June 30, 2020. The decrease in gross profit margin was due to lower revenues combined with higher employee-related costs due to a 19.5% increase in headcount.
SG&A expenses decreased $0.5 million, or 3.5%, to $13.1 million for the three months ended June 30, 2020. SG&A expenses of 27.9% of revenues for the three months ended June 30, 2020 compared with 24.4% of revenues for the three months ended June 30, 2019. The decrease in SG&A expenses was primarily due to lower travel and entertainment expenses, which was partially offset by an increase in other general and administrative expenses.
Six Months Ended June 30, 2020 Compared with Six Months Ended June 30, 2019
Revenues decreased $1.2 million, or 1.1%, to $105.8 million for the six months ended June 30, 2020. The decrease was primarily due to lower demand and realized prices for our managed review services, as well as lower revenues related to the completion of our transition services associated with the Ringtail divestiture and lower demand and realization for our processing services, which was partially offset by an increase in consulting services, primarily driven by M&A-related and litigation services.
Gross profit decreased $4.8 million, or 10.3%, to $42.1 million for the six months ended June 30, 2020. Gross profit margin decreased by 4.1 percentage points for the six months ended June 30, 2020. The decrease in gross profit margin was largely due to the completion of our transition services associated with the Ringtail divestiture, coupled with an unfavorable mix and lower profitability for our managed review and processing services, which was partially offset by the favorable mix and higher profitability for our consulting services.
SG&A expenses increased $1.1 million, or 4.3%, to $27.1 million for the six months ended June 30, 2020. SG&A expenses of 25.6% of revenues for the six months ended June 30, 2020 compared with 24.3% of revenues for the six months ended June 30, 2019. The increase in SG&A expenses was primarily due to higher infrastructure support costs largely related to an increase in headcount, as well as an increase in other general and administrative expenses.
STRATEGIC COMMUNICATIONS
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
| (dollars in thousands) | | (dollars in thousands) |
Revenues | $ | 56,883 |
| | $ | 59,112 |
| | $ | 115,269 |
| | $ | 116,816 |
|
Percentage change in revenues from prior year | -3.8 | % | | 2.8 | % | | -1.3 | % | | 5.9 | % |
Operating expenses | | | | | | | |
Direct cost of revenues | 36,923 |
| | 36,539 |
| | 74,563 |
| | 71,577 |
|
Selling, general and administrative expenses | 10,478 |
| | 12,688 |
| | 23,034 |
| | 24,379 |
|
Amortization of other intangible assets | 684 |
| | 753 |
| | 1,382 |
| | 1,512 |
|
| 48,085 |
| | 49,980 |
| | 98,979 |
| | 97,468 |
|
Segment operating income | 8,798 |
| | 9,132 |
| | 16,290 |
| | 19,348 |
|
Percentage change in segment operating income from prior year | -3.7 | % | | -4.0 | % | | -15.8 | % | | 8.3 | % |
Add back: | | | | | | | |
Depreciation and amortization of intangible assets | 1,236 |
| | 1,342 |
| | 2,520 |
| | 2,675 |
|
Adjusted Segment EBITDA | $ | 10,034 |
| | $ | 10,474 |
| | $ | 18,810 |
| | $ | 22,023 |
|
Gross profit (1) | $ | 19,960 |
| | $ | 22,573 |
| | $ | 40,706 |
| | $ | 45,239 |
|
Percentage change in gross profit from prior year | -11.6 | % | | 1.2 | % | | -10.0 | % | | 3.7 | % |
Gross profit margin (2) | 35.1 | % | | 38.2 | % | | 35.3 | % | | 38.7 | % |
Adjusted Segment EBITDA as a percent of revenues | 17.6 | % | | 17.7 | % | | 16.3 | % | | 18.9 | % |
Number of revenue-generating professionals (at period end) | 761 |
| | 672 |
| | 761 |
| | 672 |
|
Percentage change in number of revenue-generating professionals from prior year | 13.2 | % | | 7.0 | % | | 13.2 | % | | 7.0 | % |
| |
(1)
| Revenues less direct cost of revenues |
| |
(2)
| Gross profit as a percentage of revenues |
Three Months Ended June 30, 2020 Compared with Three Months Ended June 30, 2019
Revenues decreased $2.2 million, or 3.8%, to $56.9 million for the three months ended June 30, 2020, which included a 2.1% estimated negative impact from FX. Excluding the estimated negative impact of FX, revenues decreased $1.0 million, or 1.7%, primarily due to $1.9 million in lower pass-through revenues, which were partially offset by higher project-based revenues. The increase in project-based revenues was primarily driven by higher demand for public affairs and financial communications services as compared to the prior year period.
Gross profit decreased $2.6 million, or 11.6%, to $20.0 million for the three months ended June 30, 2020. Gross profit margin decreased 3.1 percentage points for the three months ended June 30, 2020.March 31, 2021. The decrease in gross profit margin was driven by higher employee-related costs due to increased headcount.headcount and higher variable compensation, which was partially offset by a smaller proportion of lower margin pass-through revenues.
SG&A expenses decreased $2.2$1.2 million, or 17.4%9.7%, to $10.5$11.3 million for the three months ended June 30, 2020,March 31, 2021, which included a 1.9%4.1% estimated favorablenegative impact from FX. SG&A expenses of 18.4%18.7% of revenues for the three months ended June 30, 2020March 31, 2021 compared with 21.5% of revenues for the three months ended June 30, 2019.March 31, 2020. The decrease in SG&A expenses was primarily due to lower travel and entertainment expenses and other general and administrativeoffice lease expenses.
Six Months Ended June 30, 2020 Compared with Six Months Ended June 30, 2019
Revenues decreased $1.5 million, or 1.3%, to $115.3 million for the six months ended June 30, 2020, which included a 1.7% estimated negative impact from FX. Excluding the estimated negative impact of FX, revenues increased $0.5 million, or 0.4%, primarily due to higher project- and retainer-based revenues, which were partially offset by $1.5 million in lower pass-through revenues. The increase in project- and retainer-based revenues was primarily driven by higher demand for financial communications and public affairs services, which was partially offset by lower demand for corporate reputation services as compared to the prior year period.
Gross profit decreased $4.5 million, or 10.0%, to $40.7 million for the six months ended June 30, 2020. Gross profit margin decreased 3.4 percentage points for the six months ended June 30, 2020. The decrease in gross profit margin was primarily driven by higher employee-related costs due to increased headcount, which was partially offset by lower variable compensation as a percentage of revenues.
SG&A expenses decreased $1.3 million, or 5.5%, to $23.0 million for the six months ended June 30, 2020, which included a 1.6% estimated favorable impact from FX. SG&A expenses of 20.0% of revenues for the six months ended June 30, 2020 compared with 20.9% of revenues for the six months ended June 30, 2019. The decrease in SG&A expenses was primarily due to lower travel and entertainment expenses.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which we have prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Note 1 to the Consolidated Financial Statements included in Part II, Item 8, of our Annual Report on Form 10-K for the year ended December 31, 20192020 describes the significant accounting policies and methods used in preparation of the Condensed Consolidated Financial Statements. We evaluate our estimates, including those related to allowance for doubtful accountsrevenues, goodwill and unbilled services, goodwill,intangible assets, income taxes and contingencies, on an ongoing basis. Our estimates are based on current facts and circumstances, historical experience and various other assumptions that we believe are reasonable, andwhich form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The accounting policies that reflect our more significant estimates, judgments and assumptions, and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results, include the following:
•Revenue recognitionRecognition
Allowance for doubtful accounts and unbilled services
•Goodwill and other intangible assets Intangible Assets
There were no material changes to our critical accounting policies and estimates from the information provided in “Critical Accounting Policies” in the Management's Discussion and Analysis, in Part II, Item 7, of our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
SIGNIFICANT NEW ACCOUNTING PRONOUNCEMENTS
See Note 2, “New Accounting Standards” in Part I, Item 1, of this Quarterly Report on Form 10-Q.
LIQUIDITY AND CAPITAL RESOURCES
| | | Six Months Ended June 30, | | Three Months Ended March 31, |
| 2020 | | 2019 | | 2021 | | 2020 |
Cash Flows | (dollars in thousands) | Cash Flows | (dollars in thousands) |
Net cash provided by (used in) operating activities | $ | 29,414 |
| | $ | (54,438 | ) | |
Net cash used in operating activities | | Net cash used in operating activities | $ | (166,584) | | | $ | (123,562) | |
Net cash used in investing activities | $ | (13,885 | ) | | $ | (20,592 | ) | Net cash used in investing activities | $ | (7,976) | | | $ | (8,228) | |
Net cash used in financing activities | $ | (70,051 | ) | | $ | (47,152 | ) | |
Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | $ | 116,416 | | | $ | (848) | |
DSO | 98 |
| | 103 |
| DSO | 97 | | | 104 | |
We generally finance our day-to-day operations, capital expenditures, acquisitions and acquisitionsshare repurchases through cash flows from operations. During the first quarter of our fiscal year, our cash needs generally exceed our cash flows from operations due to the payment of annual incentive compensation. Our operating cash flows generally exceed our cash needs subsequent to the second quarter of each year.
Our operating assets and liabilities consist primarily of billed and unbilled accounts receivable, notes receivable from employees, accounts payable, accrued expenses and accrued compensation expenses. The timing of billings and collections of receivables, as well as compensation and vendor payments, affect the changes in these balances.
DSO is a performance measure used to assess how quickly revenues are collected by the Company.Company collects accounts receivable. We calculate DSO at the end of each reporting period by dividing net accounts receivable reduced by billings in excess of services provided, by revenues for the quarter, adjusted for changes in foreign exchange rates. We multiply the result by the number of days in the quarter.
SixThree Months Ended June 30, 2020March 31, 2021 Compared with SixThree Months Ended June 30, 2019March 31, 2020
Net cash provided byused in operating activities increased $43.0 million, or 34.8%, to $166.6 million for the sixthree months ended June 30, 2020 was $29.4 million, compared with $54.4 millionMarch 31, 2021. The increase in net cash used in operating activities for the six months ended June 30, 2019. The increase in net cash provided by operating activities was primarily due to higher cash collections, combined with lower non-compensation-related operating costs, which was partially offset by higheran increase in salaries related to headcount growth and higher annual bonus payments.payments, which was partially offset by higher cash collections resulting from higher revenues compared to the same period in the prior year. DSO was 9897 days as of June 30, 2020March 31, 2021 and 103104 days as of June 30, 2019.March 31, 2020. The decrease in DSO was primarily due to an increase inhigher cash collections, which outpaced the increase in revenues.collections.
Net cash used in investing activities for the six months ended June 30, 2020 was $13.9decreased $0.3 million, compared with $20.6or 3.1%, to $8.0 million for the sixthree months ended June 30, 2019March 31, 2021 and primarily related to capital expenditures.
Net cash used inprovided by financing activities forwas $116.4 million for the sixthree months ended June 30, 2020 was $70.1 millionMarch 31, 2021 compared with $47.2$0.8 million for the six months ended June 30, 2019. The increase in net cash used in financing activities for the sixthree months ended June 30, 2020 as compared toMarch 31, 2020. The increase in net cash provided by financing activities for the prior yearthree months ended March 31, 2021 was primarily due to an increase of $32.8 million in payments for common stock repurchases under the Repurchase Program, partially offset by an increase in net borrowings of $15.0$120.0 million under our Credit Facilitysenior secured bank revolving credit facility (the "Credit Facility") as compared to the same period in the currentprior year.
Capital Resources
As of June 30, 2020,March 31, 2021, our capital resources included $304.2$233.4 million of cash and cash equivalents and available borrowing capacity of $514.0$378.9 million under the $550.0 million revolving line of credit under our Credit Facility. As of June 30, 2020,March 31, 2021, we had $35.0$170.0 million of outstanding borrowings under our Credit Facility and $1.0$1.1 million of outstanding letters of credit, which reduced the availability of borrowings under the Credit Facility. We use letters of credit primarily in lieu of security deposits for our leased office facilities. The $550.0 million revolving line of credit under theour Credit Facility includes a $75.0 million sublimit for borrowings in currencies other than USD, including the euro, British pound, Australian dollar and Canadian dollar.
The availability of borrowings, as well as issuances and extensions of letters of credit, under our Credit Facility is subject to specified conditions. We may choose to repay outstanding borrowings under the Credit Facility at any time before maturity without premium or penalty. Borrowings under the Credit Facility in USD, euro and British pound bear interest at an annual rate equal to the London Interbank Offered Rate ("LIBOR"), plus an applicable margin or an alternative base rate plus an applicable margin. The alternative base rate means a fluctuating rate per annum equal to the highest of (1) the rate of interest in effect for such day as the prime rate announced by Bank of America, (2) the federal funds rate plus the sum of 50 basis points, and (3) the one-month LIBOR plus 100 basis points. Borrowings under the Credit Facility in Canadian dollars bear interest at an annual rate equal to the Canadian Dealer Offered Rate plus an applicable margin. Borrowings under the Credit Facility in Australian dollars bear interest at an annual rate equal to the Bank Bill Swap Reference Bid Rate plus an applicable margin. The Credit Facility is guaranteed by substantially all of our domestic subsidiaries and is secured by a first priority security interest in substantially all of the assets of FTI Consulting and such domestic subsidiaries. Subject to certain conditions, at any time prior to maturity, we will be able to invite existing and new lenders to increase the size of the facility up to a maximum of $700.0 million.
In July 2017, the Financial Conduct Authority of the United Kingdom (“FCA”), which regulates LIBOR, announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. On March 5, 2021, however, the ICE Benchmark Administration Limited (“IBA”), which is the administrator that publishes LIBOR, and the FCA made public statements regarding the future cessation of LIBOR and that IBA will permanently cease publication of all settings of non-U.S. dollar LIBOR and only the one-week and two-month settings of U.S. dollar LIBOR on December 31, 2021, with the publication of the remaining U.S. dollar LIBOR settings ceasing on June 30, 2023. Our Credit Facility is indexed to LIBOR and provides for multiple LIBOR currency and tenor options. Our Credit Facility also provides for alternative reference rates, although such alternative reference rates and the consequences of the phase out of LIBOR cannot be entirely predicted at this time.
Our Credit Agreement and other indebtedness outstanding from time to time contains or may contain covenants that, among other things, may limit our ability to: incur additional indebtedness; create liens; pay dividends on our capital stock, make distributions or repurchases of our capital stock or make specified other restricted payments; consolidate, merge or sell all or substantially all of our assets; guarantee obligations of other entities or our foreign subsidiaries; enter into hedging agreements; enter into transactions with affiliates or related persons; or engage in any business other than consulting-related businesses. In addition, the Credit Agreement includes a financial covenant that requires us not to exceed a maximum consolidated total net leverage ratio (the ratio of funded debt (less unrestricted cash up to $150.0 million) to Consolidated EBITDA, as defined in the Credit Agreement). As of June 30, 2020,March 31, 2021, we were in compliance with the covenants contained in the Credit Agreement and the indenture, dated as of August 20, 2018, between us and U.S. Bank National Association, as trustee (the "Indenture"), governing the 2023 Convertible Notes.
Future Capital Needs
We anticipate that our future capital needs will principally consist of funds required for:
•operating and general corporate expenses relating to the operation of our businesses;
•capital expenditures, primarily for information technology equipment, office furniture and leasehold improvements;
•debt service requirements, including interest payments on our long-term debt;
•compensation to designated executive management and senior managing directors under our various long-term incentive compensation programs;
•discretionary funding of the Repurchase Program;
•contingent obligations related to our acquisitions;
•potential acquisitions of businesses; and
•other known future contractual obligations.
During the sixthree months ended June 30, 2020,March 31, 2021, we spent $13.9$8.0 million in capital expenditures to support our organization, including direct support for specific client engagements. We currently expect to make additional capital expenditures to support our organization in an aggregate amount between $26$62 million and $32$72 million, which includes costs related to supportleasehold improvements for our organizationnew principal office space in New York, New York, for the remainder of 2020.2021. Our estimate takes into consideration the needs of our existing businesses but does not include the impact of any purchases that we may be required to make as a result of future acquisitions or specific client engagements that are not completed or not currently contemplated. Our capital expenditure requirements may change if our staffing levels or technology needs change significantly from what we currently anticipate, if we are required to purchase additional equipment specifically to support new client engagements or if we pursue and complete additional acquisitions.
2023 Convertible Notes
Our 2023 Convertible Notes were issued pursuant to the Indenture. The 2023 Convertible Notes bear interest at a fixed rate of 2.0% per year, payable semiannually in arrears on February 15 and August 15 of each year, beginning on February 15, 2019. The 2023 Convertible Notes will mature on August 15, 2023, unless earlier converted or repurchased. Upon conversion, the 2023 Convertible Notes may be settled, at our election, in cash, shares of our common stock or a combination of cash and shares of our common stock.
Each $1,000 principal amount of the 2023 Convertible Notes will be convertible into 9.8643 shares of our common stock, which is equivalent to a conversion price of approximately $101.38 per share of common stock, at maturity, subject to adjustment upon the occurrence of specified events. Prior to the close of business on the business day immediately preceding May 15, 2023, the 2023 Convertible Notes may be converted only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter endingended on September 30, 2018 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “Measurement Period”) in which the trading price (as defined in the Indenture) per $1,000 principal amount of the 2023 Convertible Notes for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate in effect on each such trading day; or (3) upon the occurrence of specified corporate events. On or after May 15, 2023, until the close of business on the business day immediately preceding the maturity date of August 15, 2023, holders may convert their 2023 Convertible Notes at any time, regardless of the foregoing circumstances.
We may not redeem the 2023 Convertible Notes prior to the maturity date.
If we undergo a fundamental change (as defined in the Indenture), subject to certain conditions, holders may require us to repurchase for cash all or part of their 2023 Convertible Notes in principal amounts of $1,000 or a multiple thereof. The fundamental change repurchase price will be equal to 100% of the principal amount of the 2023 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. In addition, in certain circumstances, we may be required to increase the conversion rate for any 2023 Convertible Notes converted in
connection with a make-whole fundamental change (as defined in the Indenture). See Note 8, "Debt" in Part I, Item 1 of this Quarterly Report on Form 10-Q for a further discussion of the 2023 Convertible Notes.
Cash Flows
For the last several years, our cash flows from operations have exceeded our cash needs for capital expenditures and debt service requirements. We believe that our cash flows from operations, supplemented by short-term borrowings under our Credit Facility, as necessary, will provide adequate cash to fund our long-term cash needs for the next 12 months or longer.
Our conclusion that we will be able to fund our cash requirements for the next 12 months by using existing capital resources and cash generated from operations does not take into account exacerbation of, or additional or prolonged disruptions caused by, the COVID-19 pandemic that could result in a material adverse impact on our business, which are events beyond our control, or the impact of any future acquisitions, unexpected significant changes in number of employees or other unanticipated uses of cash. The anticipated cash needs of our business could change significantly if we pursue and complete additional business acquisitions, if our business plans change, if events, including economic disruptions, arising from the COVID-19 pandemic worsen, or if other economic conditions change from those currently prevailing or from those now anticipated or if other unexpected circumstances arise that may have a material effect on the cash flow or profitability of our business, including material negative changes in the health and welfare of our employees or those of our clients, and the operating performance or financial results of our business. Any of these events or circumstances, including any new business opportunities, could involve significant additional funding needs in excess of the identified currently available sources and could require us to increase borrowings or raise additional debt or equity funding to meet those needs. Our ability to raise additional capital, if necessary, is subject to a variety of factors that we cannot predict with certainty, including:
•our future profitability;
•the quality of our accounts receivable;
•our relative levels of debt and equity;
•the volatility and overall condition of the capital markets; and
•the market prices of our securities.
Any new debt funding, if available, may be on terms less favorable to us than our Credit Facility or the 2023 Convertible Notes. See “Forward-Looking Statements” in Part I, Item 2 of this Quarterly Report on Form 10-Q, and the information contained under the heading “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2019and under the heading “Risk Factors” in Part II, Item 1A, of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements and we have not entered into any transactions involving unconsolidated subsidiaries or special purpose entities that would be expected to have a material impact on our financial condition or results of operations.
Future Contractual Obligations
There have been no material changes in our future contractual obligations, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve uncertainties and risks. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues, future results and performance, future capital allocations and expenditures, expectations, plans or intentions relating to acquisitions, share repurchases and other matters, business trends, new, or changes to, laws and regulations, and other information that is not historical. Forward-looking statements often contain words such as “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts” and variations of such words or similar expressions. All forward-looking statements, including, without limitation, management’s financial guidance and examination of operating trends, are based upon our historical performance and our current plans, estimates and expectations at the time we make them, and various assumptions. There can be no assurance that management’s expectations, beliefs, forecasts and projections will result or be achieved. Our actual financial results, performance or achievements could
differ materially from those expressed in, or implied by, any forward-looking statements. The inclusion of any forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates, forecasts or
expectations contemplated by us will be achieved. Given these risks, uncertainties and other factors, you should not place undue reliance on any forward-looking statements.
There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in, or implied by, this Quarterly Report on Form 10-Q. Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this Quarterly Report on Form 10-Q include those set forth under the heading “Risk Factors” in Part II, Item 1A, of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2019,2020, as well as in other information that we file with the SEC from time to time. Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this Quarterly Report on Form 10-Q include, but are not limited to, the following:
•impact of the COVID-19 pandemic and related events that are beyond our control, including possible effects on our business, financial condition and results of operations, clients and vendors, and employees and contractors, which could affect our segments and practices, the type of services they provide and the geographic regions in which we conduct business, differently and adversely;adversely, as well as heighten risks related to or otherwise negatively impact the effectiveness of cybersecurity, information technology, financial reporting and our other corporate functions;
•changes in demand for our services;
•our ability to attractrecruit and retain qualified professionals and senior management;management, including segment, industry and regional leaders;
•conflicts resulting in our inability to represent certain clients;
•our former employees joining or forming competing businesses;
•our ability to manage our headcount needs and our professionals’ utilization and billing rates and maintain or increase the pricing of our services and products;
•our ability to identify suitable acquisition candidates, negotiate favorable terms, take advantage of opportunistic acquisition situations and integrate the operations of acquisitions, as well as the costs of integration;
•our ability to adapt to and manage the risks associated with operating in non-U.S. markets;
•our ability to replace key personnel, including former executives, officers, senior managers and practice and regional leaders who have highly specialized skills and experience;
•our ability to protect the confidentiality of internal and client data and proprietary and confidential information, including from cyberattacks, systems failures or other similar events;events, or the use or misuse of social media;
•legislation or judicial rulings, including legislation or rulings regarding data privacy and the discovery process;
•periodic fluctuations in revenues, operating income and cash flows;
•damage to our reputation as a result of claims involving the quality of our services;services, failures of our internal information technology systems controls or adverse publicity relating to certain clients or engagements;
•fee discounting or renegotiation, lower pricing, less advantageous contract terms and unexpected termination of client engagements;
•competition for clients and key personnel;
•general economic factors, industry trends, restructuring and bankruptcy rates, legal or regulatory requirements, capital market conditions, merger and acquisition activity, major litigation activity and other events outside of our control;
•our ability to manage growth;
•risk of non-payment of receivables;
•the amount and terms of our outstanding indebtedness;
•uncertainty from the expected discontinuance of LIBOR and transition to any other interest rate benchmark;
headcount and cost reductions during periods of reduced demand;
•risks relating to the obsolescence of or the protection of our proprietary software products, intellectual property rights and trade secrets;
•foreign currency disruptions and currency fluctuations between the U.S. dollar and foreign currencies; and
•fluctuations in the mix of our services and the geographic locations in which our clients are located or our services are rendered.
There may be other factors that may cause our actual results to differ materially from our forward-looking statements. All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this Quarterly Report on Form 10-Q and are expressly qualified in their entirety by the cautionary statements included herein. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances and do not intend to do so.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
For information regarding our exposure to certain market risks, see “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A, of our Annual Report on Form 10-K for the year ended December 31, 2019.2020. There have been no materialmaterial changes in our market risk exposure during the period covered by this Quarterly Report on Form 10-Q.
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Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures. An evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q, was made under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (a) were effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is timely recorded, processed, summarized and reported and (b) included, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting. There have not been any changes in our internal control over financial reporting that occurred during the three months ended June 30, 2020March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
From time to time in the ordinary course of business, we are subject to claims, asserted or unasserted, or named as a party to lawsuits or investigations. Litigation, in general, and intellectual property and securities litigation in particular, can be expensive and disruptive to normal business operations. Moreover, the results of legal proceedings cannot be predicted with any certainty and in the case of more complex legal proceedings such as intellectual property and securities litigation, the results are difficult to predict at all. We are not aware of any asserted or unasserted legal proceedings or claims that we believe would have a material adverse effect on our financial condition or results of our operations.
There have been no material changes in any risk factors previously disclosed in Part II, Item 1A, of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 filed with the Securities and Exchange Commission (“SEC”) on April 30, 2020 and Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 25, 2020. We may disclose changes to risk factors or disclose additional factors from time to time in our future filings with the SEC.United States Securities and Exchange Commission. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Unregistered sales of equity securities.
None.
Repurchases of our common stock.
The following table provides information with respect to purchases we made of our common stock during the three months ended June 30, 2020:March 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program (1) | | Approximate Dollar Value That May Yet Be Purchased Under the Program |
| (in thousands, except per share data) |
January 1 through January 31, 2021 | 20 | | (2) | $ | 110.60 | | | 16 | | (5) | $ | 211,452 | |
February 1 through February 28, 2021 | 380 | | (3) | $ | 108.09 | | | 345 | | (6) | $ | 174,176 | |
March 1 through March 31, 2021 | 84 | | (4) | $ | 119.18 | | | 61 | | (7) | $ | 167,058 | |
| 484 | | | | | 422 | | | |
|
| | | | | | | | | | | | | |
| Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program (1) | | Approximate Dollar Value That May Yet Be Purchased Under the Program |
| (in thousands, except per share data) |
April 1 through April 30, 2020 | 13 |
| (2) | $ | 119.64 |
| | 13 |
| (5) | $ | 114,757 |
|
May 1 through May 31, 2020 | 80 |
| (3) | $ | 116.47 |
| | 67 |
| (6) | $ | 106,953 |
|
June 1 through June 30, 2020 | 396 |
| (4) | $ | 106.80 |
| | 391 |
| (7) | $ | 65,279 |
|
| 489 |
| | | | 471 |
| | |
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(1) | On June 2, 2016, our Board of Directors authorized a stock repurchase program of up to $100.0 million (the “Repurchase Program”). On each of May 18, 2017, December 1, 2017, February 21, 2019 and February 20, 2020, our Board of Directors authorized an additional $100.0 million, respectively, increasing the Repurchase Program to an aggregate authorization of $500.0 million. During the quarter ended June 30, 2020, we repurchased an aggregate of 470,853 shares of our outstanding common stock under the Repurchase Program at an average price of $108.41 per share for a total cost of approximately $51.0 million. |
| |
(2) | Includes 164 shares of common stock withheld to cover payroll tax withholdings related to the lapse of restrictions on restricted stock. |
| |
(3) | Includes 12,406 shares of common stock withheld to cover payroll tax withholdings related to the lapse of restrictions on restricted stock. |
| |
(4) | Includes 5,881 shares of common stock withheld to cover payroll tax withholdings related to the lapse of restrictions on restricted stock. |
(1)On June 2, 2016, our Board of Directors authorized a stock repurchase program of up to $100.0 million (the “Repurchase Program”). On each of May 18, 2017, December 1, 2017, February 21, 2019 and February 20, 2020, our Board of Directors authorized an additional $100.0 million, respectively. On each of July 28, 2020 and December 3, 2020, our Board of Directors authorized an additional $200.0 million, respectively, increasing the Repurchase Program to an aggregate authorization of $900.0 million. No time limit has been established for the completion of the Repurchase Program, and the Repurchase Program may be suspended, discontinued or replaced by the Board of Directors at any time without prior notice. During the quarter ended March 31, 2021, we repurchased an aggregate of 421,725 shares of our outstanding common stock under the Repurchase Program at an average price of $109.37 per share for a total cost of approximately $46.1 million.
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(5) | During the month ended April 30, 2020, we repurchased and retired 13,178 shares of common stock, at an average price per share of $119.41, for an aggregate cost of $1.6 million. |
| |
(6) | During the month ended May 31, 2020, we repurchased and retired 67,142 shares of common stock, at an average price per share of $116.21, for an aggregate cost of $7.8 million. |
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(7) | During the month ended June 30, 2020, we repurchased and retired 390,533 shares of common stock, at an average price per share of $106.69, for an aggregate cost of $41.7 million. |
(2)Includes 4,237 shares of common stock withheld to cover payroll tax withholdings related to the lapse of restrictions on restricted stock. (3)Includes 34,767 shares of common stock withheld to cover payroll tax withholdings related to the lapse of restrictions on restricted stock.
(4)Includes 23,755 shares of common stock withheld to cover payroll tax withholdings related to the lapse of restrictions on restricted stock.
(5)During the month ended January 31, 2021, we repurchased and retired 15,827 shares of common stock, at an average price per share of $109.87, for an aggregate cost of $1.7 million.
(6)During the month ended February 28, 2021, we repurchased and retired 345,298 shares of common stock, at an average price per share of $107.93, for an aggregate cost of $37.3 million.
(7)During the month ended March 31, 2021, we repurchased and retired 60,600 shares of common stock, at an average price per share of $117.43, for an aggregate cost of $7.1 million.
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Item 3. | Defaults Upon Senior Securities |
None.
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Item 4. | Mine Safety Disclosures |
Not applicable.
None.
Number
| | Description | | | | | | |
Exhibit Number | | Description |
3.1 | | |
3.1 | | |
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3.2 | | |
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3.3 | | |
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3.4 | | |
| | |
3.5 | | |
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10.1*31.1† | | |
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31.1† | | |
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31.2† | | |
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32.1†** | | |
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32.2†** | | |
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101 | | The following financial information from the Quarterly Report on Form 10-Q of FTI Consulting, Inc., included herewith, and formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of June 30, 2020March 31, 2021 and December 31, 2019;2020; (ii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2020March 31, 2021 and 2019;2020; (iii) Condensed Consolidated Statement of Stockholders’ Equity for the three and six months ended June 30, 2020March 31, 2021 and 2019;2020; (iv) Condensed Consolidated Statements of Cash Flows for the sixthree months ended June 30, 2020March 31, 2021 and 2019;2020; and (v) Notes to the Condensed Consolidated Financial Statements, tagged as blocks of text. |
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104 | | The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020,March 31, 2021, formatted in Inline XBRL (included as Exhibit 101). |
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** | Management contract or compensatory plan or arrangement. |
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** | This certification is deemed not filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: July 30, 2020April 29, 2021
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FTI CONSULTING, INC. |
| | |
By: | | /s/ Brendan Keating |
| | Brendan Keating |
| | Chief Accounting Officer and Controller
|
| | (principal accounting officer) |