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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File No. 1-12173

 

Navigant Consulting, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

36-4094854

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

150 North Riverside Plaza, Suite 2100, Chicago, Illinois 60606

(Address of principal executive offices, including zip code)

(312) 573-5600

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 par
value per share

 

NCI

 

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:

 

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.    YES      NO  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES      NO  

As of June 30, 2019, 38,466,024 shares of the registrant’s common stock, par value $.001 per share, were outstanding.

 

 

 

2


 

INDEX

 

 

Page 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

5

Notes to Unaudited Consolidated Financial Statements  

10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

Item 3. Quantitative and Qualitative Disclosures About Market Risk

35

Item 4. Controls and Procedures

35

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings

37

Item 1A. Risk Factors

37

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

39

Item 6. Exhibits

39

SIGNATURES

41

 

 

 

 

 

 

 

 

 

3


 

Forward-Looking Statements

Statements included in this report which are not historical in nature are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements may generally be identified by words such as “anticipate,” “believe,” “may,” “should,” “could,” “intend,” “estimate,” “expect,” “likely,” “continue,” “plan,” “projects,” “positioned,” “outlook” and similar expressions. These statements are based upon management’s current expectations and speak only as of the date of this report. The Company cautions readers that there may be events in the future that the Company is not able to accurately predict or control and the information contained in the forward-looking statements is inherently uncertain and subject to a number of risks that could cause actual results to differ materially from those contained in or implied by the forward-looking statements including, without limitation: the satisfaction of the conditions precedent to the consummation of the proposed merger, including, without limitation, the receipt of stockholder and regulatory approvals; unanticipated difficulties or expenditures relating to the proposed merger; legal proceedings, judgments or settlements, including those that may be instituted against the Company, the Company’s board of directors, executive officers and others following the announcement of the proposed merger; disruptions of current plans and operations caused by the announcement and pendency of the proposed merger; potential difficulties in employee retention due to the announcement and pendency of the proposed merger; the response of customers, suppliers, business partners and regulators to the announcement of the proposed merger; the risk of unanticipated costs, liabilities or an adverse impact on the Company’s business operations arising from the Company’s provision of post-divestiture transition services and support in connection with the sale of the Company’s Disputes, Forensics and Legal Technology segment and the transaction advisory services practice within the Company’s Financial Services Advisory and Compliance segment; the execution of the Company’s long-term growth objectives and margin improvement initiatives; risks inherent in international operations, including foreign currency fluctuations; ability to make acquisitions and divestitures and complete such acquisitions and divestitures in the time anticipated; pace, timing and integration of acquisitions; operational risks associated with new or expanded service areas, including business process management services; impairments; changes in accounting standards or tax rates, laws or regulations; management of professional staff, including dependence on key personnel, recruiting, retention, attrition and the ability to successfully integrate new consultants into the Company’s practices; utilization rates; conflicts of interest; potential loss of clients or large engagements and the Company’s ability to attract new business; brand equity; competition; accurate pricing of engagements, particularly fixed fee and multi-year engagements; clients’ financial condition and their ability to make payments to the Company; risks inherent with litigation; higher risk client assignments; government contracting; professional liability; information security; the adequacy of our business, financial and information systems and technology; maintenance of effective internal controls; potential legislative and regulatory changes; continued and sufficient access to capital; compliance with covenants in our credit agreement; interest rate risk; and market and general economic and political conditions. Further information on these and other potential factors that could affect the Company’s business and financial condition and the results of operations are included in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, and elsewhere in the Company’s filings with the Securities and Exchange Commission (“SEC”), which are available on the SEC’s website or at investors.navigant.com. The Company cannot guarantee any future results, levels of activity, performance or achievement and undertakes no obligation to update any of its forward-looking statements.

 

 

 

 

 

4


 

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements.

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

 

90,626

 

 

$

 

206,920

 

 

Accounts receivable, net and contract assets

 

 

200,820

 

 

 

 

179,923

 

 

Prepaid expenses and other current assets

 

 

25,199

 

 

 

 

22,512

 

 

Total current assets

 

 

316,645

 

 

 

 

409,355

 

 

Non-current assets:

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

62,672

 

 

 

 

63,025

 

 

Operating lease right-of-use assets

 

 

80,780

 

 

 

 

-

 

 

Intangible assets, net

 

 

14,129

 

 

 

 

14,166

 

 

Goodwill

 

 

426,060

 

 

 

 

422,357

 

 

Other assets

 

 

7,945

 

 

 

 

8,644

 

 

Total assets

$

 

908,231

 

 

$

 

917,547

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts payable

$

 

15,219

 

 

$

 

13,302

 

 

Accrued liabilities

 

 

17,641

 

 

 

 

15,558

 

 

Accrued compensation-related costs

 

 

46,316

 

 

 

 

69,555

 

 

Income tax payable

 

 

3,362

 

 

 

 

13,357

 

 

Operating lease liabilities

 

 

22,735

 

 

 

 

-

 

 

Other current liabilities

 

 

23,879

 

 

 

 

34,044

 

 

Total current liabilities

 

 

129,152

 

 

 

 

145,816

 

 

Non-current liabilities:

 

 

 

 

 

 

 

 

 

 

Deferred income tax liabilities

 

 

39,258

 

 

 

 

33,901

 

 

Operating lease liabilities

 

 

81,166

 

 

 

 

-

 

 

Other non-current liabilities

 

 

2,818

 

 

 

 

25,277

 

 

Total non-current liabilities

 

 

123,242

 

 

 

 

59,178

 

 

Total liabilities

 

 

252,394

 

 

 

 

204,994

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

50

 

 

 

 

49

 

 

Additional paid-in capital

 

 

671,153

 

 

 

 

664,473

 

 

Treasury stock

 

 

(235,216

)

 

 

 

(160,972

)

 

Retained earnings

 

 

220,983

 

 

 

 

211,543

 

 

Accumulated other comprehensive loss

 

 

(5,929

)

 

 

 

(6,529

)

 

Total Navigant Consulting, Inc. stockholders' equity

 

 

651,041

 

 

 

 

708,564

 

 

Non-controlling interest

 

 

4,796

 

 

 

 

3,989

 

 

Total stockholders' equity

 

 

655,837

 

 

 

 

712,553

 

 

Total liabilities and stockholders' equity

$

 

908,231

 

 

$

 

917,547

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

5


 

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

 

 

For the three months ended

 

 

For the six months ended

 

 

June 30,

 

 

June 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues before reimbursements

$

 

196,567

 

 

$

 

165,224

 

 

$

 

382,696

 

 

$

 

326,669

 

Reimbursements

 

 

26,489

 

 

 

 

19,489

 

 

 

 

43,222

 

 

 

 

36,112

 

Total revenues

 

 

223,056

 

 

 

 

184,713

 

 

 

 

425,918

 

 

 

 

362,781

 

Cost of services before reimbursable expenses

 

 

140,405

 

 

 

 

113,121

 

 

 

 

275,761

 

 

 

 

230,057

 

Reimbursable expenses

 

 

26,489

 

 

 

 

19,489

 

 

 

 

43,222

 

 

 

 

36,112

 

Total cost of services

 

 

166,894

 

 

 

 

132,610

 

 

 

 

318,983

 

 

 

 

266,169

 

General and administrative expenses

 

 

35,968

 

 

 

 

34,912

 

 

 

 

71,135

 

 

 

 

71,991

 

Depreciation expense

 

 

4,262

 

 

 

 

4,943

 

 

 

 

8,848

 

 

 

 

9,940

 

Amortization expense

 

 

1,393

 

 

 

 

1,665

 

 

 

 

2,765

 

 

 

 

3,417

 

Other operating costs

 

 

-

 

 

 

 

2,295

 

 

 

 

32

 

 

 

 

3,278

 

Operating income

 

 

14,539

 

 

 

 

8,288

 

 

 

 

24,155

 

 

 

 

7,986

 

Interest expense

 

 

317

 

 

 

 

911

 

 

 

 

635

 

 

 

 

1,739

 

Interest income

 

 

(375

)

 

 

 

(77

)

 

 

 

(1,064

)

 

 

 

(196

)

Other (income) expense, net

 

 

(10

)

 

 

 

(183

)

 

 

 

122

 

 

 

 

178

 

Income from continuing operations before income tax expense

 

 

14,607

 

 

 

 

7,637

 

 

 

 

24,462

 

 

 

 

6,265

 

Income tax expense

 

 

3,682

 

 

 

 

1,509

 

 

 

 

6,729

 

 

 

 

1,734

 

Net income from continuing operations

 

 

10,925

 

 

 

 

6,128

 

 

 

 

17,733

 

 

 

 

4,531

 

Income from discontinued operations, net of tax

 

 

523

 

 

 

 

22,698

 

 

 

 

34

 

 

 

 

36,148

 

Net income

 

 

11,448

 

 

 

 

28,826

 

 

 

 

17,767

 

 

 

 

40,679

 

Less: Income attributable to non-controlling interest, net of tax

 

 

(2,369

)

 

 

 

-

 

 

 

 

(4,407

)

 

 

 

-

 

Net income attributable to Navigant Consulting, Inc.

$

 

9,079

 

 

$

 

28,826

 

 

$

 

13,360

 

 

$

 

40,679

 

Basic net income per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income from continuing operations attributable to Navigant Consulting, Inc.

$

 

0.22

 

 

$

 

0.14

 

 

$

 

0.34

 

 

$

 

0.10

 

Income from discontinued operations, net of tax

 

 

0.01

 

 

 

 

0.50

 

 

 

 

-

 

 

 

 

0.80

 

Net income attributable to Navigant Consulting, Inc. (1)

$

 

0.23

 

 

$

 

0.64

 

 

$

 

0.34

 

 

$

 

0.90

 

Shares used in computing basic per share data

 

 

38,654

 

 

 

 

45,106

 

 

 

 

39,436

 

 

 

 

45,113

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income from continuing operations attributable to Navigant Consulting, Inc.

$

 

0.22

 

 

$

 

0.13

 

 

$

 

0.33

 

 

$

 

0.10

 

Income from discontinued operations, net of tax

 

 

0.01

 

 

 

 

0.49

 

 

 

 

-

 

 

 

 

0.77

 

Net income attributable to Navigant Consulting, Inc. (1)

$

 

0.23

 

 

$

 

0.62

 

 

$

 

0.33

 

 

$

 

0.87

 

Shares used in computing diluted per share data

 

 

39,616

 

 

 

 

46,549

 

 

 

 

40,512

 

 

 

 

46,692

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 

11,448

 

 

$

 

28,826

 

 

$

 

17,767

 

 

$

 

40,679

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized net gain (loss), foreign currency translation

 

 

1,042

 

 

 

 

(3,406

)

 

 

 

600

 

 

 

 

(2,037

)

Unrealized net gain on interest rate derivatives

 

 

-

 

 

 

 

112

 

 

 

 

-

 

 

 

 

362

 

Reclassification adjustment on interest rate derivatives included in

   interest expense and income tax expense

 

 

-

 

 

 

 

(39

)

 

 

 

-

 

 

 

 

(32

)

Other comprehensive income (loss), net of tax

 

 

1,042

 

 

 

 

(3,333

)

 

 

 

600

 

 

 

 

(1,707

)

Total comprehensive income, net of tax

 

 

12,490

 

 

 

 

25,493

 

 

 

 

18,367

 

 

 

 

38,972

 

Income attributable to non-controlling interest, net of tax

 

 

(2,369

)

 

 

 

-

 

 

 

 

(4,407

)

 

 

 

-

 

Total comprehensive income attributable to Navigant Consulting, Inc., net of tax

$

 

10,121

 

 

$

 

25,493

 

 

$

 

13,960

 

 

$

 

38,972

 

(1) Earnings per share may not foot due to rounding.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

6


 

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

 

 

 

 

Navigant Consulting, Inc. Shareholders

 

 

 

 

 

 

 

 

 

 

 

Common Stock Shares

 

 

Treasury Stock Shares

 

 

Common Stock Par Value

 

 

Additional Paid-In Capital

 

 

Treasury Stock Cost

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Retained Earnings

 

 

Non-Controlling Interest

 

 

Total Stock-holders' Equity

 

Balance at March 31, 2019

 

 

49,546

 

 

 

(10,431

)

 

 

49

 

 

 

666,794

 

 

 

(214,465

)

 

 

(6,971

)

 

 

213,830

 

 

 

2,427

 

 

 

661,664

 

Comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,042

 

 

 

9,079

 

 

 

2,369

 

 

 

12,490

 

Dividends paid ($0.05 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,926

)

 

 

-

 

 

 

(1,926

)

Issuances of common stock

 

 

29

 

 

 

-

 

 

 

-

 

 

 

608

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

608

 

Vesting of restricted stock units, net of forfeitures and tax withholdings

 

 

302

 

 

 

-

 

 

 

1

 

 

 

(2,543

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,542

)

Share-based compensation expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,212

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,212

 

Additional paid-in capital recorded through compensation expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,082

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,082

 

Repurchases of common stock

 

 

-

 

 

 

(983

)

 

 

-

 

 

 

-

 

 

 

(20,751

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(20,751

)

Balance at June 30, 2019

 

 

49,877

 

 

 

(11,414

)

 

$

50

 

 

$

671,153

 

 

$

(235,216

)

 

$

(5,929

)

 

$

220,983

 

 

$

4,796

 

 

$

655,837

 

 

 

 

 

Navigant Consulting, Inc. Shareholders

 

 

 

 

 

 

 

 

 

 

 

Common Stock Shares

 

 

Treasury Stock Shares

 

 

Common Stock Par Value

 

 

Additional Paid-In Capital

 

 

Treasury Stock Cost

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Retained Earnings

 

 

Non-Controlling Interest

 

 

Total Stock-holders' Equity

 

Balance at December 31, 2018

 

 

49,387

 

 

 

(8,114

)

 

 

49

 

 

 

664,473

 

 

 

(160,972

)

 

 

(6,529

)

 

 

211,543

 

 

 

3,989

 

 

 

712,553

 

Distributions to non-controlling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,600

)

 

 

(3,600

)

Comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

600

 

 

 

13,360

 

 

 

4,407

 

 

 

18,367

 

Dividends paid ($0.10 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,920

)

 

 

-

 

 

 

(3,920

)

Issuances of common stock

 

 

98

 

 

 

-

 

 

 

-

 

 

 

1,464

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,464

 

Vesting of restricted stock units, net of forfeitures and tax withholdings

 

 

392

 

 

 

-

 

 

 

1

 

 

 

(3,847

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,846

)

Share-based compensation expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,981

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,981

 

Additional paid-in capital recorded through compensation expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,082

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,082

 

Repurchases of common stock

 

 

-

 

 

 

(3,300