NCI Navigant Consulting Inc

Navigant (NYSE: NCI) today announced financial results for the second quarter ended June 30, 2017.

Financial Summary and Highlights:

• Second quarter 2017 revenues before reimbursements (RBR) of $235.2 million decreased 1% (or relatively flat on a currency adjusted basis) and total revenues of $256.8 million decreased 2% compared to second quarter 2016
• Second quarter 2017 net income was $8.8 million, or $0.18 per share, compared to $14.8 million, or $0.30 per share, for second quarter 2016
• Second quarter 2017 adjusted earnings per share (EPS) of $0.24 decreased from $0.33 in second quarter 2016, primarily driven by lower than expected revenues coupled with maintenance of resources in anticipation of an improved demand environment in the second half of 2017
• Repurchased $9.0 million of common stock during second quarter 2017, an increase of 33% over second quarter 2016
• Management updated its 2017 financial outlook to reflect first half performance

“Demand for our services in the second quarter was impacted by unexpected factors, some of which we have already begun to overcome, and others that will take more time to address,” stated Julie Howard, Navigant Chairman and CEO. “We experienced more conservative buying patterns than originally anticipated, leading to extended sales cycles and longer project conversion. We also believe the slowdown in demand for certain of our services was driven by legislative and regulatory uncertainty in the U.S. In response to these factors we implemented certain performance improvement actions both during and after the close of the quarter, including targeted staff reductions and other cost control measures.”

Howard further commented, “We are encouraged that we saw our overall performance improve over the course of the second quarter, and our pipeline of opportunities strengthen. We anticipate a stronger second half, primarily driven by continued organic growth in our Healthcare segment, and an improved backlog of work in our Financial Services and Compliance segment. However, we believe it is prudent to modestly adjust our guidance downward for the full year to reflect first half results, and our view of the uncertainties in the current demand environment.”

Navigant reported second quarter 2017 RBR of $235.2 million, a 1% decrease compared to $238.5 million for second quarter 2016. Total revenues decreased 2% to $256.8 million for second quarter 2017 compared to $261.7 million for second quarter 2016. Net income for second quarter 2017 was $8.8 million, or $0.18 per share, compared to $14.8 million, or $0.30 per share, in the prior year second quarter. Segment operating profit includes $3.3 million of severance expense. Additionally, severance expense of $1.1 million was incurred related to General & Administrative operations as Navigant executed against its plans to increase administrative efficiencies and implement business support improvements. Adjusted EPS was $0.24 for second quarter 2017, compared to $0.33 in second quarter 2016. Second quarter 2017 adjusted EBITDA was $29.2 million, a 21% decrease from $37.2 million for the same period in 2016.

Segment Financial Summary

   

For the quarter endedJune 30,

      2017     2016     Change RBR ($000)         Healthcare $ 94,134 $ 89,876 4.7 % Energy 31,743 29,295 8.4 % Financial Services Advisory and Compliance 33,683 39,994 -15.8 % Disputes, Forensics & Legal Technology       75,678         79,320       -4.6 % Total Company     $ 235,238       $ 238,485       -1.4 % Total Revenues ($000) Healthcare $ 102,804 $ 98,386 4.5 % Energy 36,544 32,855 11.2 % Financial Services Advisory and Compliance 37,244 45,360 -17.9 % Disputes, Forensics & Legal Technology       80,254         85,082       -5.7 % Total Company     $ 256,846       $ 261,683       -1.8 % Segment Operating Profit ($000) Healthcare $ 28,116 $ 29,362 -4.2 % Energy 8,516 8,402 1.4 % Financial Services Advisory and Compliance 12,307 17,511 -29.7 % Disputes, Forensics & Legal Technology       21,429         28,963       -26.0 % Total Company     $ 70,368       $ 84,238       -16.5 % Segment Operating Margin (% of RBR) Healthcare 29.9 % 32.7 % Energy 26.8 % 28.7 % Financial Services Advisory and Compliance 36.5 % 43.8 % Disputes, Forensics & Legal Technology       28.3 %       36.5 %       Total Company       29.9 %       35.3 %        

Healthcare segment RBR increased 5% for second quarter 2017 compared to the respective period in 2016, primarily on an organic basis. Segment RBR for the quarter also increased 4% sequentially from first quarter 2017. Growth was driven by continued demand from hospital systems for large, strategy-led transformation projects and demand from life sciences companies for commercialization solutions. The segment also experienced growth in managed services contracts, albeit at a lower rate than expected. Segment operating profit declined 4% in second quarter 2017 compared to the same period in 2016, primarily due to business mix.

Energy segment RBR increased 8% for second quarter 2017 on a year-over-year basis, led by contributions from the Ecofys acquisition announced in November 2016. The trend toward a cleaner, distributed, smarter energy infrastructure is driving change in traditional strategies and business models for Navigant’s energy clients. Growth in demand from commercial sector clients related to these energy transformation trends partially offset a decline in work for the U.S. federal government, as previously disclosed in the first quarter 2017. Segment operating profit increased 1% in second quarter 2017 compared to second quarter 2016.

Financial Services Advisory and Compliance segment RBR for second quarter 2017 decreased 16% compared to the prior year quarter, but increased 2% sequentially from first quarter 2017. As previously disclosed, growth in this segment was expected to decelerate in 2017, as compared to significant organic growth of 22% in full-year 2016, but not to the degree experienced in the second quarter. Throughout the quarter, conservative buying patterns for compliance services related to consumer financial services regulation continued to put revenue pressure on the segment. In contrast, the environment for financial crime related services remained strong. Segment pipeline improved over the course of the quarter and is expected to drive improved revenue performance in the segment for the second half of the year. Segment operating profit was down 30% in second quarter 2017 compared to the respective period in 2016, as resources and capabilities were maintained in anticipation of improving demand.

Disputes, Forensics & Legal Technology second quarter 2017 segment RBR decreased 5% year-over-year and 6% on a sequential basis from first quarter 2017. The decrease in RBR was driven by general weakness in commercial litigation opportunities and a delay in the start dates for certain engagements in the segment’s legal technology solutions business. Segment operating profit was down 26% in second quarter 2017 compared to the respective period of 2016, largely due to severance expense of $1.9 million which was recorded during the quarter.

Cash Flow

Net cash provided by operating activities for second quarter 2017 was $21.3 million compared to $34.2 million for second quarter 2016. Free cash flow decreased to $13.5 million for second quarter 2017 compared to $24.4 million for the same period in 2016, primarily driven by a $10.0 million earn-out payment related to the McKinnis acquisition which was paid during the second quarter of 2017. Days Sales Outstanding was 86 days as of June 30, 2017, up five days compared to December 31, 2016.

Bank debt was $184.8 million at June 30, 2017, compared to $189.8 million at June 30, 2016 and $178.3 million at March 31, 2017, with the increase in bank debt primarily attributable to the previously mentioned McKinnis acquisition earn-out payment. Leverage (bank debt divided by trailing twelve month adjusted EBITDA) was 1.37 at June 30, 2017, compared to 1.46 at June 30, 2016 and 1.25 at March 31, 2017.

Navigant repurchased 436,122 shares of common stock during the second quarter 2017 at an aggregate cost of $9.0 million and an average cost of $20.62 per share.

2017 Outlook

Navigant adjusted its financial outlook for 2017. Full year 2017 RBR is expected to range between $955 million and $980 million while 2017 total revenues are estimated to be between $1.04 billion and $1.065 billion. Adjusted EBITDA for the full year 2017 is expected to range between $135 and $145 million and adjusted EPS for the full year 2017 is estimated to be between $1.19 and $1.29.

Non-GAAP Financial Information

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

No reconciliation of Navigant’s 2017 adjusted EBITDA guidance and 2017 adjusted EPS guidance, both of which exclude the impact and tax-effected impact of severance expense and other operating costs (benefit), respectively, is included in the financial schedules attached to this press release. Navigant is not able to accurately forecast the excluded items at the level of precision that would be required to be included in the most directly comparable GAAP financial measure without unreasonable efforts.

Conference Call Details

Navigant will host a conference call to discuss the company’s second quarter 2017 results at 10 a.m. Eastern Time (9 a.m. Central Time) on Monday, July 31, 2017. The conference call may be accessed via the Navigant website (investors.navigant.com) or by dialing 800.988.9675 (415.228.4875 for international callers) and referencing pass code “NCI.” An archived version of the webcast will also be available via the Navigant website. A report of financial and related supplemental information is also available via the Navigant website.

About Navigant

Navigant Consulting, Inc. (NYSE: NCI) is a specialized, global professional services firm that helps clients take control of their future. Navigant’s professionals apply deep industry knowledge, substantive technical expertise, and an enterprising approach to help clients build, manage, and/or protect their business interests. With a focus on markets and clients facing transformational change and significant regulatory or legal pressures, the firm primarily serves clients in the healthcare, energy, and financial services industries. Across a range of advisory, consulting, outsourcing, and technology/analytics services, Navigant’s practitioners bring sharp insight that pinpoints opportunities and delivers powerful results. More information about Navigant can be found at navigant.com.

Statements included in this press release which are not historical in nature are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements may generally be identified by words such as “anticipate,” “believe,” “may,” “could,” “intend,” “estimate,” “expect,” “plan,” “outlook” and similar expressions. These statements are based upon management’s current expectations and speak only as of the date of this press release. The Company cautions readers that there may be events in the future that the Company is not able to accurately predict or control and the information contained in the forward-looking statements is inherently uncertain and subject to a number of risks that could cause actual results to differ materially from those contained in or implied by the forward-looking statements including, without limitation: the 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; pace, timing and integration of acquisitions and separation of divestitures; 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 financial results are included under the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, 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.

  NAVIGANT CONSULTING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data(1)) (Unaudited)                 For the quarter ended For the six months ended June 30, June 30, 2017     2016 2017     2016 Revenues: Revenues before reimbursements $ 235,238 $ 238,485 $ 471,449 $ 461,960 Reimbursements   21,608         23,198     43,234         45,010   Total revenues 256,846 261,683 514,683 506,970 Cost of services: Cost of services before reimbursable expenses 168,721 157,966 333,773 311,906 Reimbursable expenses   21,608         23,198     43,234         45,010   Total cost of services 190,329 181,164 377,007 356,916 General and administrative expenses 41,726 44,507 83,210 84,338 Depreciation expense 7,826 7,015 15,299 13,537 Amortization expense 2,219 2,891 4,538 5,812 Other operating costs (benefit): Contingent acquisition liability adjustments, net - 850 1,199 850 Office consolidation, net - 174 (38 ) 174 Deferred debt issuance costs write off   -         -     145         -   Operating income 14,746 25,082 33,323 45,343 Interest expense 1,280 1,429 2,349 2,689 Interest income (81 ) (36 ) (112 ) (75 ) Other expense (income), net   602         (444 )   385         (784 ) Income before income tax expense 12,945 24,133 30,701 43,513 Income tax expense   4,148         9,356     10,808         16,094   Net income $ 8,797       $ 14,777   $ 19,893       $ 27,419       Basic per share data Net income $ 0.19 $ 0.31 $ 0.42 $ 0.58 Shares used in computing basic per share data 47,113 47,550 47,023 47,488   Diluted per share data Net income $ 0.18 $ 0.30 $ 0.41 $ 0.56 Shares used in computing diluted per share data 48,696 48,841 48,833 48,936     NAVIGANT CONSULTING, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AND SELECTED DATA (In thousands, except DSO data)         June 30, December 31, 2017     2016 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 6,556 $ 8,291 Accounts receivable, net 267,283 261,755 Prepaid expenses and other current assets   35,225         29,762   Total current assets 309,064 299,808 Non-current assets: Property and equipment, net 87,996 82,953 Intangible assets, net 24,270 28,727 Goodwill 630,933 625,027 Other assets   24,797         18,282   Total assets $ 1,077,060       $ 1,054,797     LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 8,938 $ 11,871 Accrued liabilities 17,739 16,144 Accrued compensation-related costs 65,312 106,779 Income tax payable - 1,564 Other current liabilities   28,129         38,616  

Total current liabilities

120,118 174,974 Non-current liabilities: Deferred income tax liabilities 85,612 77,737 Other non-current liabilities 34,420 32,579 Bank debt non-current   184,787         135,030   Total non-current liabilities   304,819         245,346   Total liabilities   424,937         420,320   Stockholders' equity: Common stock 58 57 Additional paid-in capital 653,096 644,519 Treasury stock (195,315 ) (181,361 ) Retained earnings 215,936 196,468 Accumulated other comprehensive loss   (21,652 )       (25,206 ) Total stockholders' equity   652,123         634,477   Total liabilities and stockholders' equity $ 1,077,060       $ 1,054,797    

Selected Data (unaudited)

Days sales outstanding, net (DSO) 86 81         NAVIGANT CONSULTING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)             For the quarter ended For the six months ended June 30, June 30, 2017     2016 2017     2016   Cash flows from operating activities: Net income $ 8,797 $ 14,777 $ 19,893 $ 27,419

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation expense 7,826 7,015 15,299 13,537 Amortization expense 2,219 2,891 4,538 5,812 Share-based compensation expense 4,380 3,995 7,402 6,524 Deferred income taxes 6,893 98 8,232 1,131 Allowance for doubtful accounts receivable 1,171 2,911 1,175 4,547 Contingent acquisition liability adjustments, net - 850 1,199 850 Other, net 826 384 1,477 741 Changes in assets and liabilities (net of acquisitions): Accounts receivable (2,731 ) (28,222 ) (7,010 ) (43,765 ) Prepaid expenses and other assets (9,161 ) 1,149 (10,358 ) (1,025 ) Accounts payable (2,290 ) 2,000 (2,371 ) 2,478 Accrued liabilities 799 205 1,383 472 Accrued compensation-related costs 7,386 16,878 (41,870 ) (22,788 ) Income taxes payable (5,962 ) 7,004 (1,609 ) 12,059 Other liabilities   1,152         2,277     964         (337 )   Net cash provided by (used in) operating activities 21,305 34,212 (1,656 ) 7,655   Cash flows from investing activities: Purchases of property and equipment (7,100 ) (5,080 ) (20,889 ) (10,039 ) Acquisitions of businesses, net of cash acquired - - - (1,995 ) Other acquisition payments - - - (5,500 ) Other, net   (42 )       (607 )   (158 )       (625 )   Net cash used in investing activities (7,142 ) (5,687 ) (21,047 ) (18,159 )   Cash flows from financing activities: Issuances of common stock 729 785 2,643 2,841 Repurchases of common stock (8,993 ) (6,757 ) (13,954 ) (13,023 ) Payments of contingent acquisition liabilities (10,330 ) - (10,330 ) (49 ) Repayments to banks (95,669 ) (112,853 ) (246,469 ) (209,245 ) Borrowings from banks 100,789 92,482 294,591 227,239 Payments of debt issuance costs (35 ) - (1,201 ) - Other, net   (3,500 )       (2,121 )   (4,827 )       (2,730 ) Net cash (used in) provided by financing activities   (17,009 )       (28,464 )   20,453         5,033     Effect of exchange rate changes on cash and cash equivalents   270         (157 )   515         (114 ) Net decrease in cash and cash equivalents (2,576 ) (96 ) (1,735 ) (5,585 ) Cash and cash equivalents at beginning of the period   9,132         3,406     8,291         8,895   Cash and cash equivalents at end of the period $ 6,556       $ 3,310   $ 6,556       $ 3,310       NAVIGANT CONSULTING, INC. AND SUBSIDIARIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (In thousands, except per share data and percentages) (Unaudited)                         This press release includes certain non-GAAP financial measures as defined by the Securities and Exchange Commission. Below are the reconciliations of these non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with generally accepted accounting principles (GAAP). This information should be considered as supplemental in nature and not as a substitute for, or superior to, any measure of performance prepared in accordance with GAAP. Management uses these non-GAAP financial measures in addition to GAAP financial measures to assess the Company's operations and financial results and believes they are useful indicators of operating performance and the Company's ability to generate cash flows from operations that are available for interest, debt service, taxes and capital expenditures. Investors should recognize that these non-GAAP financial measures may not be comparable to similarly-titled measures of other companies.    

EBITDA, adjusted EBITDA, adjusted Net Income and

For the quarter ended For the six months ended

adjusted Earnings Per Share (2)

June 30, June 30, 2017     2016 2017     2016 Severance expense $ 4,385 $ 1,140 $ 6,171 $ 1,997 Income tax benefit (3)   (1,730 )       (430 )   (2,386 )       (740 ) Tax-effected impact of severance expense $ 2,655       $ 710   $ 3,785       $ 1,257     Other operating costs - contingent acquisition liability adjustment, net $ - $ 850 $ 1,199 $ 850 Income tax benefit (3)   -         (341 )   (481 )       (341 ) Tax-effected impact of other operating costs - contingent acquisition liability adjustment, net $ -       $ 509   $ 718       $ 509     Other operating cost (benefit) - office consolidation, net $ - $ 174 $ (38 ) $ 174 Income tax (benefit) expense (3)   -         (70 )   15         (70 ) Tax-effected impact of other operating cost (benefit) - office consolidation, net $ -       $ 104   $ (23 )     $ 104     Other operating costs - deferred debt issuance costs write off $ - $ - $ 145 $ - Income tax benefit (3)   -         -     (58 )       -   Tax-effected impact of other operating costs - deferred debt issuance costs write off $ -       $ -   $ 87       $ -     EBITDA reconciliation: Net Income $ 8,797 $ 14,777 $ 19,893 $ 27,419 Interest expense 1,280 1,429 2,349 2,689 Interest income (81 ) (36 ) (112 ) (75 ) Other expense (income), net 602 (444 ) 385 (784 ) Income tax expense 4,148 9,356 10,808 16,094 Depreciation expense 7,826 7,015 15,299 13,537 Accelerated depreciation - office consolidation (included in other operating costs - office consolidation, net) - 33 - 33 Amortization expense   2,219         2,891     4,538         5,812   EBITDA $ 24,791 $ 35,021 $ 53,160 $ 64,725 Severance expense 4,385 1,140 6,171 1,997 Other operating costs - contingent acquisition liability adjustment, net - 850 1,199 850 Other operating cost (benefit) - office consolidation, net - 141 (38 ) 141 Other operating costs - deferred debt issuance costs write off   -         -     145         -   Adjusted EBITDA $ 29,176       $ 37,152   $ 60,637       $ 67,713     Net income $ 8,797 $ 14,777 $ 19,893 $ 27,419 Tax-effected impact of severance expense 2,655 710 3,785 1,257 Tax-effected impact of other operating costs - contingent acquisition liability adjustment, net - 509 718 509 Tax-effected impact of other operating cost (benefit) - office consolidation, net - 104 (23 ) 104 Tax-effected impact of other operating costs - deferred debt issuance costs write off   -         -     87         -   Adjusted net income $ 11,452       $ 16,100   $ 24,460       $ 29,289   Shares used in computing adjusted per diluted share data 48,696 48,841 48,833 48,936 Adjusted earnings per share $ 0.24       $ 0.33   $ 0.50       $ 0.60     For the quarter ended For the six months ended

Free Cash Flow (4)

June 30, June 30, 2017     2016 2017     2016 Net cash provided by (used in) operating activities $ 21,305 $ 34,212 $ (1,656 ) $ 7,655 Changes in assets and liabilities 10,807 (1,291 ) 60,871 52,906 Allowance for doubtful accounts receivable (1,171 ) (2,911 ) (1,175 ) (4,547 ) Purchases of property and equipment (7,100 ) (5,080 ) (20,889 ) (10,039 ) Payments of acquisition liabilities - (498 ) - (498 ) Payments of contingent acquisition liabilities   (10,330 )       -     (10,330 )       (49 ) Free Cash Flow $ 13,511       $ 24,432   $ 26,821       $ 45,428    

Leverage Ratio (5)

At June 30, 2017     2016 Adjusted EBITDA for prior twelve-month period $ 135,214 $ 130,121 Bank debt $ 184,787 $ 189,757 Leverage ratio 1.37 1.46   For the quarter ended For the six months ended

Organic Growth (6)

June 30, June 30, 2017     2016     Growth 2017     2016     Growth Revenues before reimbursements $ 235,238 $ 238,485 -1.4 % $ 471,449 $ 461,960 2.1 % Pro forma acquisition adjustment - 5,086 - 10,491 Currency impact   1,581         -           3,374         -         Organic RBR $ 236,819 $ 243,571 -2.8 % $ 474,823 $ 472,451 0.5 %   Footnotes             (1) Per share data may not sum due to rounding. (2) EBITDA is earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA excludes the impact of severance expense and other operating costs (benefit). Adjusted net income and adjusted earnings per share exclude net income and per share net income impact of severance expense and other operating costs (benefit). Severance expense and other operating costs (benefit) are not considered to be non-recurring, infrequent or unusual to our business. Management believes that these measures provide investors with enhanced comparability of the Company's results of operations across periods. (3) Effective income tax expense (benefit) has been determined based on specific tax jurisdiction. (4) Free cash flow is calculated as net cash provided from operations excluding changes in assets and liabilities and allowance for doubtful accounts receivable less cash payments for property and equipment and deferred acquisition related payments. Free cash flow does not represent discretionary cash available for spending as it excludes certain contractual obligations such as debt repayment. However, management believes that it provides investors with an indicator of cash flows available for on-going business operations and long term value creation. (5) Leverage ratio is calculated as bank debt at the end of the period divided by adjusted EBITDA for the prior twelve-month period. Management believes that leverage ratio provides investors with an indicator of the cash flows available to repay the Company's debt obligations. (6) Organic growth represents revenues before reimbursements adjusted to include the impact of our acquisitions as if we owned them from the beginning of each comparable period and adjusted to exclude the impact of foreign currency exchange rate fluctuations. Management believes that organic growth reflects the growth of our existing business and is, therefore, useful in analyzing the Company's financial condition and results of operations.

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Navigant Investor RelationsJennifer Moreno Reddick, 312-573-5634jennifer.morenoreddick@navigant.comorNavigant Corporate CommunicationsBelia Ortega, 312-583-2640belia.ortega@navigant.com