SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 4, 2018
FTI CONSULTING, INC.
(Exact Name of Registrant as Specified in Charter)
| Maryland | 001-14875 | 52-1261113 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
555 12th Street NW, Washington, D.C. 20004
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (202) 312-9100
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425 |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). 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. ☐
| ITEM 2.02. | Results of Operations and Financial Condition |
FTI Consulting, Inc. (“FTI Consulting”) uses a presentation from time to time in its discussions with investors and analysts (the “Presentation”). The Presentation includes FTI Consulting’s past and present financial results, operating data and other information. A copy of the Presentation is furnished as Exhibit 99.1 and has been posted to the FTI Consulting website at www.fticonsulting.com.
| ITEM 7.01. | Regulation FD Disclosure |
In the Presentation, FTI Consulting uses information derived from consolidated and segment financial information that may not be presented in its financial statements or prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). Certain of these measures are considered “non-GAAP financial measures” under rules promulgated by the Securities and Exchange Commission. Specifically, FTI Consulting has referred to the following non-GAAP 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 |
FTI Consulting has included the definitions of “Segment Operating Income (Loss)” and “Adjusted Segment EBITDA,” which are financial measures presented in accordance with GAAP, in order to more fully define the components of certain non-GAAP financial measures. FTI Consulting evaluates the performance of its operating segments based on Adjusted Segment EBITDA, and Segment Operating Income (Loss) is a component of the definition of Adjusted Segment EBITDA. FTI Consulting defines “Segment Operating Income (Loss)” as a segment’s share of consolidated operating income. FTI Consulting defines “Total Segment Operating Income (Loss),” which is a non-GAAP financial measure, as the total of Segment Operating Income for all segments, which excludes unallocated corporate expenses. FTI Consulting uses Segment Operating Income for the purpose of calculating Adjusted Segment EBITDA. FTI Consulting defines “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. FTI Consulting uses Adjusted Segment EBITDA as a basis to internally evaluate the financial performance of its segments because FTI Consulting believes it reflects current core operating performance and provides an indicator of the segment’s ability to generate cash.
FTI Consulting defines “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. FTI Consulting defines “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 and losses on early extinguishment of debt. FTI Consulting defines Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of total revenues. FTI Consulting believes that the non-GAAP financial measures, which exclude the effects of remeasurement of acquisition-related contingent consideration, special charges and goodwill impairment charges, when considered together with its GAAP financial results and GAAP financial measures, provide management and investors with a more complete understanding of FTI Consulting’s operating results, including underlying trends. In addition, EBITDA is a common alternative measure of operating performance used by many of FTI Consulting’s competitors. It is used by investors, financial analysts, rating agencies and others to value and compare the financial performance of companies in FTI Consulting’s industry. Therefore, FTI Consulting also believes that these measures, considered along with corresponding GAAP measures, provide management and investors with additional information for comparison of its operating results with the operating results of other companies.
1
FTI Consulting defines “Adjusted Net Income” and “Adjusted Earnings per Diluted Share” (“Adjusted EPS”), which are non-GAAP financial measures, as net income (loss) and earnings (loss) per diluted share, 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, gain or loss on sale of a business and the adjustment related to the impact of adopting the 2017 U.S. Tax Cuts and Jobs Act (the “2017 Tax Act”). FTI Consulting uses Adjusted Net Income for the purpose of calculating Adjusted EPS. Management of FTI Consulting uses Adjusted EPS to assess total company operating performance on a consistent basis. FTI Consulting believes that this non-GAAP financial measure, which excludes the effects of the remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges, losses on early extinguishment of debt, non-cash interest expense on convertible notes, gain or loss on sale of a business and the adjustment related to the adoption of the 2017 Tax Act, when considered together with its GAAP financial results, provides management and investors with an additional understanding of its business operating results, including underlying trends.
FTI Consulting defines “Free Cash Flow” as net cash provided by (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 FTI Consulting’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 FTI Consulting’s Consolidated Statements of Comprehensive Income. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the Presentation.
The information included herein, including Exhibit 99.1 furnished herewith, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be incorporated by reference into any filing pursuant to the Securities Act of 1933, as amended, or the Exchange Act, regardless of any incorporation by reference language in any such filing, except as expressly set forth by specific reference in such filing.
| ITEM 9.01. | Financial Statements and Exhibits |
| (d) | Exhibits |
| 99.1 | December 2018 Investor Presentation of FTI Consulting, Inc. |
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, FTI Consulting, Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| FTI CONSULTING, INC. | ||||||
| Dated: December 4, 2018 | By: | /s/ CURTIS LU | ||||
| Curtis Lu | ||||||
| General Counsel | ||||||
3
FTI Consulting, Inc. Bank of America Merrill Lynch 2018 Leveraged Finance Conference December 4, 2018 Exhibit 99.1
Cautionary Note about Forward-Looking Statements This presentation includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which involve uncertainties and risks. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues, future results and performance, expectations, plans or intentions relating to acquisitions, share repurchases and other matters, business trends and other information that is not historical, including statements regarding estimates of our future financial results. When used in this presentation, words such as “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts” and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements, including, without limitation, estimates of our future financial results, are based upon our expectations at the time we make them and various assumptions. Our expectations, beliefs and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs and estimates will be achieved, and the Company’s actual results may differ materially from our expectations, beliefs and estimates. Further, preliminary results are subject to normal year-end adjustments. The Company has experienced fluctuating revenues, operating income and cash flows in prior periods and expects that this will occur from time to time in the future. Other factors that could cause such differences include declines in demand for, or changes in, the mix of services and products that we offer, the mix of the geographic locations where our clients are located or where services are performed, fluctuations in the price per share of our common stock, adverse financial, real estate or other market and general economic conditions, and other future events, which could impact each of our segments differently and could be outside of our control, the pace and timing of the consummation and integration of future acquisitions, the Company’s ability to realize cost savings and efficiencies, competitive and general economic conditions, retention of staff and clients, new laws and regulations, or changes thereto, including the 2017 U.S. Tax Cuts and Jobs Act (“2017 Tax Act”), and the risks described under the heading “Item 1A, Risk Factors” in the Company’s annual report on Form 10-K for the year ended December 31, 2017 filed with the Securities and Exchange Commission ("SEC"), including the risks set forth under “Risks Related to Our Reportable Segments” and “Risks Related to Our Operations,” the risks described under the heading "Part II, Item 1A, Risk Factors" in the Company's quarterly report on Form 10-Q for the quarter ended September 30, 2018 filed with the SEC, and in the Company's other filings with the SEC. We are under no duty to update any of the forward-looking statements to conform such statements to actual results or events and do not intend to do so.
FCN Publicly Traded $2.8BLN 1982 Year Founded 4,600+ Total Employees Worldwide 490+ Senior Managing Directors 9 9 Specialized Industry Practice Groups 2 Nobel Laureates 8/10 Advisor to 8 of the World’s Top 10 Bank Holding Companies 96/100 Advisor to 96 of the World’s Top 100 Law Firms 53/100 53 of Global 100 Corporations are Clients FTI Consulting: Experts with Impact 76 Offices in 76 Cities Around the Globe Equity Market Capitalization1 All statistics above are as of September 30, 2018. 1Number of total shares outstanding as of October 18, 2018, times the closing share price as of October 25, 2018.
Investment Thesis Leading global business advisory firm with strong people and strong positions: corporations, law firms and governments come to us when there is a critical need Committed to building a profitable business with sustainable underlying growth, regardless of economic conditions Willingness to invest EBITDA in key growth areas where we have a right to win Healthy balance sheet and strong cash flows with a commitment to return capital to our stockholders Organic growth strategy with an emphasis on profitable revenue growth Believe we are on a path towards sustained double-digit year-over-year Adjusted EPS growth over time
Recent Performance Builds on Success Against Transformational Agenda EPS and Adjusted EPS (2) Revenues ($ in millions) Adjusted EBITDA (1) ($ in millions) Net Income ($ in millions) 10% 39% 85% 79% *3Q18 LTM Revenues, Net Income, Adjusted EBITDA, EPS and Adjusted EPS calculated as the sum of the last four quarters. Charts not to scale. ¹See accompanying financial tables and “End Notes: FTI Consulting Non-GAAP Financial Measures” for the definition and reconciliations of Adjusted EBITDA, which is a non-GAAP financial measure, to the most directly comparable GAAP financial measure. 2See accompanying financial tables and “End Notes: FTI Consulting Non-GAAP Financial Measures” for the definition and reconciliations of Adjusted Earnings Per Diluted Share (“Adjusted EPS”), which is a non-GAAP financial measure, to the most directly comparable GAAP financial measure. 71%
Robust Cash Flows and Strong Balance Sheet Charts not to scale. Total Debt, Net of Cash/Adjusted EBITDA (1) **Pro Forma 2018 Q3 Cash and Total Debt, Net of Cash gives effect to the redemption of 6.0% Senior Notes due 2022, which occurred on November 15, 2018, as if it occurred at the end of 3Q18. *Pro Forma 3Q18 LTM Total Debt, Net of Cash/Adjusted EBITDA calculated as Pro Forma Q3 Total Debt, Net of Cash divided by the sum of the last four quarters Adjusted EBITDA. Pro Forma Total Debt gives effect to the redemption of 6.0% Senior Notes due 2022, which occurred on November 15, 2018, as if it occurred at the end of 3Q18. ¹See accompanying financial tables and “End Notes: FTI Consulting Non-GAAP Financial Measures” for the definition and reconciliations of Adjusted EBITDA, which is a non-GAAP financial measure, to the most directly comparable GAAP financial measure. Pro Forma 3Q18 LTM* Debt ($ in millions) **
We are Recognized as the World’s Leading Experts 2018 America’s Best Management Consulting Firms 2018 Consulting Firm of the Year 2018 #1 Crisis Management Firm 2018 Global Turnaround Consulting Firm of the Year 2018 Forensic Accounting Firm of the Year 2018 Compass Lexecon #1 on Expert Witness Firms’ Power Index 2018 Top 10 Best Consulting Firms to Work For 2018 #1 Demonstrative Evidence Provider
Our Balanced and Diversified Portfolio FTI Consulting is organized into five segments, each of which is a global leader in its own right for one simple reason: our commitment to having a tangible, positive impact on how our clients confront and manage change and risk. Corporate Finance & Restructuring Economic Consulting Forensic & Litigation Consulting Technology Strategic Communications Corporate Finance & Restructuring Economic Consulting Forensic & Litigation Consulting Strategic Communications Technology North America Asia Pacific EMEA Latin America 3Q18 LTM Revenues by Segment 3Q18 LTM Total Adjusted Segment EBITDA (1) by Segment 3Q18 LTM Revenues by Region ¹See accompanying financial tables and “End Notes: FTI Consulting Non-GAAP Financial Measures” for the definition and reconciliation of Total Adjusted Segment EBITDA, which is a non-GAAP financial measure, to the most directly comparable GAAP financial measure. * 3Q18 LTM Revenues by Segment and Region, and Total Adjusted Segment EBITDA are calculated as the sum of the last four quarters.
15 countries 43 offices 926 professionals Corporate Finance & Restructuring Enhance Business Transformation and Transaction capabilities Grow Restructuring globally Deeper penetration of key industries, e.g., Retail, Healthcare, TMT, Automotive and Energy +14% Growth Opportunities ($ in millions) Adjusted Segment EBITDA (1) Revenues *3Q18 LTM Revenues and Adjusted Segment EBITDA are calculated as the sum of the last four quarters. ¹See accompanying “End Notes: FTI Consulting Non-GAAP Financial Measures” for the definition of Adjusted Segment EBITDA, which is a GAAP financial measure.
52 offices 1,129 professionals 18 countries Forensic & Litigation Consulting Growth Opportunities +10% -Enhance core offerings, including Data & Analytics and Construction Solutions capabilities -Grow overseas businesses, e.g., London and Hong Kong -Invest ahead of emerging trends, e.g., Cybersecurity ($ in millions) Revenues Adjusted Segment EBITDA (1) *3Q18 LTM Revenues and Adjusted Segment EBITDA are calculated as the sum of the last four quarters. ¹See accompanying “End Notes: FTI Consulting Non-GAAP Financial Measures” for the definition of Adjusted Segment EBITDA, which is a GAAP financial measure.
Economic Consulting Revenues +6% 37 offices 705 professionals 15 countries Maintain leading position of Compass Lexecon Grow overseas businesses, e.g., EMEA, Australia and Asia Develop adjacent businesses in the U.S., e.g., International Arbitration, Energy, Healthcare, TMT and Financial Services Growth Opportunities ($ in millions) Adjusted Segment EBITDA (1) *3Q18 LTM Revenues and Adjusted Segment EBITDA are calculated as the sum of the last four quarters. ¹See accompanying “End Notes: FTI Consulting Non-GAAP Financial Measures” for the definition of Adjusted Segment EBITDA, which is a GAAP financial measure.
Expand addressable market through new distribution channels for Consulting & Services Invest in new and adjacent services, e.g., Information Governance, Privacy & Security Services and Contract Intelligence Grow overseas businesses, e.g., Europe, Middle East and India Growth Opportunities Technology 31 offices 303 professionals 9 countries +6% Revenues ($ in millions) Adjusted Segment EBITDA (1) *3Q18 LTM Revenues and Adjusted Segment EBITDA are calculated as the sum of the last four quarters. ¹See accompanying “End Notes: FTI Consulting Non-GAAP Financial Measures” for the definition of Adjusted Segment EBITDA, which is a GAAP financial measure.
Strategic Communications 34 offices 652 professionals 16 countries +14% Further develop large, complex client relationships Enhance market share in highly regulated industries, e.g., Public Affairs, Financial Services, Energy, Healthcare, Industrials and TMT Leverage FTI Consulting’s services and platform to enhance client results Growth Opportunities Revenues ($ in millions) Adjusted Segment EBITDA (1) *3Q18 LTM Revenues and Adjusted Segment EBITDA are calculated as the sum of the last four quarters. ¹See accompanying “End Notes: FTI Consulting Non-GAAP Financial Measures” for the definition of Adjusted Segment EBITDA, which is a GAAP financial measure.
Collectively, We are Well-Positioned to Accelerate Growth The strength of our people, their relationships and our franchise is increasingly making FTI a place where the best people want to be Our performance has been achieved without a boom in restructuring We have delivered record 2018 results from almost exclusively organic growth with improved utilization The balance sheet of FTI has never been stronger – we have enormous flexibility to use our cash to further enhance our enterprise Our bedrock core competencies in disputes, investigations and crises are finding even more relevance as we continue to build our adjacent practices
Q&A
Financial Supplements
FY 2014 – Q3 2018 and FY 2018 Guidance: Revenues $1,960-$1,990
FY 2014 – Q3 2018: Net Income and Adjusted EBITDA ¹See accompanying financial tables and “End Notes: FTI Consulting Non-GAAP Financial Measures” for the definition and reconciliations of Adjusted EBITDA, which is a non-GAAP financial measure, to the most directly comparable GAAP financial measure. Adjusted EBITDA (1) Net Income
FY 2014 – Q3 2018 and FY 2018 Guidance: Earnings Per Diluted Share and Adjusted Earnings Per Diluted Share ¹See accompanying financial tables and “End Notes: FTI Consulting Non-GAAP Financial Measures” for the definition and reconciliations of Adjusted Earnings Per Diluted Share, including FY 2018 guidance, which is a non-GAAP financial measure, to the most directly comparable GAAP financial measure. $3.60-$3.80 $3.53-$3.73 Adjusted Earnings Per Diluted Share (1)
Q3 2018, Q2 2018 and Q3 2017: Select Cash Position and Capital Allocation All numbers in thousands, except for DSOs ¹Total debt excludes the impact of unamortized deferred debt issue costs of $10.0 million, $3.3 million and $3.9 million as of September 30, 2018, June 30, 2018 and September 30, 2017, respectively, and excludes the impact of the unamortized deferred debt discount of $46.1 million for the three months ended September 30, 2018 related to the issuance of our 2.0% convertible senior notes due 2023. ²See “End Notes: FTI Consulting Non-GAAP Financial Measures” for the definition and reconciliations of Free Cash Flow, which is a non-GAAP financial measure, to the most directly comparable GAAP financial measure. Q3 2018 Q3 2018 Q2 2018 Q2 2018 Q3 2017 Q3 2017 Cash and cash equivalents $ 505,867 $ 116,556 $ 157,961 Accounts receivable, net $ 623,397 $ 607,455 $ 547,132 Days sales outstanding ("DSO") 104 104 101 101 105 105 Net cash provided by operating activities $ 120,857 $ 34,615 $ 106,233 Purchases of property and equipment $ (11,621 ) $ (8,540 ) $ (6,894 ) Purchase and retirement of common stock $ (15,000 ) $ — $ (52,772 ) Total Debt¹ $ 616,250 $ 375,000 $ 465,000 Free Cash Flow² $ 109,236 $ 26,075 $ 99,339
Financial TablesReconciliations of Non-GAAP Financial Measures
Reconciliation of Net Income to Adjusted EBITDA 1See “End Notes: FTI Consulting Non-GAAP Financial Measures” for the definition of Adjusted EBITDA, which is a non-GAAP financial measure. (in thousands) Q3 2018 Q3 2018 Q2 2018 Q2 2018 Q1 2018 Q1 2018 Q4 2017 Q4 2017 FY 2017 FY 2017 FY 2016 FY 2016 FY 2015 FY 2015 FY 2014 FY 2014 Net Income $ 44,333 $ 43,609 $ 38,945 $ 66,888 $ 107,962 $ 85,520 $ 66,053 $ 58,807 Income tax provision (benefit) 19,964 14,113 15,270 (38,458 ) (20,857 ) 42,283 39,333 42,604 Interest income and other (1,400 ) (2,474 ) 1,800 (452 ) (3,752 ) (10,466 ) (3,232 ) (4,670 ) Interest expense 7,246 6,583 6,244 6,547 25,358 24,819 42,768 50,685 Gain on sale of business (13,031 ) — — — — — — — Loss on early extinguishment of debt — — — — — — 19,589 — Depreciation and amortization 8,295 8,488 7,765 7,409 31,177 38,700 31,392 33,989 Amortization of other intangible assets 1,975 2,052 2,270 2,766 10,563 10,306 11,726 15,521 Special charges — — — 10,811 40,885 10,445 — 16,339 Remeasurement of acquisition-related contingent consideration — — — — 702 1,403 (1,867 ) (2,723 ) Adjusted EBITDA1 $ 67,382 $ 72,371 $ 72,294 $ 55,511 $ 192,038 $ 203,010 $ 205,762 $ 210,552
Reconciliations of Net Income to Adjusted Net Income and Earnings Per Diluted Share to Adjusted Earnings Per Diluted Share 1See “End Notes: FTI Consulting Non-GAAP Financial Measures” for the definitions of Adjusted Net Income and Adjusted Earnings Per Diluted Share, which are non-GAAP financial measures. (in thousands, except per share data) Q3 2018 Q2 2018 Q1 2018 Q4 2017 FY 2017 FY 2016 FY 2015 FY 2014 Net income $44,333 $43,609 $38,945 $66,888 $107,962 $85,520 $66,053 $58,807 Add back: Special charges — — — 10,811 40,885 10,445 — 16,339 Tax impact of special charges — — — (3,635) (13,570) (3,595) — (6,702) Loss on early extinguishment of debt — — — — — — 19,589 — Tax impact of loss on early extinguishment of debt — — — — — — (7,708) — Remeasurement of acquisition-related contingent consideration — — — — 702 1,403 (1,867) (2,722) Tax impact of remeasurement of acquisition-related contingent consideration — — — — (269) (546) 747 1,004 Non-cash interest expense on convertible notes 938 — — — — — — — Tax impact of non-cash interest expense on convertible notes (241) — — — — — — — Gain on sale of business (13,031) — — — — — — — Tax impact of gain on sale of business 6,798 — — — — — — — Impact of 2017 Tax Act — — — (44,870) (44,870) — — — Adjusted Net Income1 $38,797 $43,609 $38,945 $29,194 $90,840 $93,227 $76,814 $66,726 Earnings per common share – diluted $1.14 $1.14 $1.04 $1.78 $2.75 $2.05 $1.58 $1.44 Add back: Special charges — — — 0.29 1.04 0.25 — 0.40 Tax impact of special charges — — — (0.10) (0.34) (0.08) — (0.16) Loss on early extinguishment of debt — — — — — — 0.47 — Tax impact of loss on early extinguishment of debt — — — — — — (0.19) — Remeasurement of acquisition-related contingent consideration — — — — 0.02 0.03 (0.04) (0.06) Tax impact of remeasurement of acquisition-related contingent consideration — — — — (0.01) (0.01) 0.02 0.02 Non-cash interest expense on convertible notes 0.03 — — — — — — — Tax impact of non-cash interest expense on convertible notes (0.01) — — — — — — — Gain on sale of business (0.34) — — — — — — — Tax impact of gain on sale of business 0.18 — — — — — — — Impact of 2017 Tax Act — — — (1.19) (1.14) — — — Adjusted earnings per common share – diluted1 $1.00 $1.14 $1.04 $0.78 $2.32 $2.24 $1.84 $1.64 Weighted average number of common shares outstanding – diluted 38,756 38,271 37,612 37,643 39,192 41,709 41,729 40,729
Reconciliation of Net Income to Total Adjusted Segment EBITDA 1See “End Notes: FTI Consulting Non-GAAP Financial Measures” for the definition of Total Adjusted Segment EBITDA, which is a non-GAAP financial measure. (in thousands) Q3 2018 Q2 2018 Q1 2018 Q4 2017 Net Income $44,333 $43,609 $38,945 $66,888 Add back: Income tax provision 19,964 14,113 15,270 (38,458) Interest income and other (1,400) (2,474) 1,800 (452) Interest expense 7,246 6,583 6,244 6,547 Gain on sale of business (13,031) — — — Unallocated corporate expenses 27,806 25,882 23,888 22,974 Segment depreciation expense 7,388 7,574 6,864 6,510 Amortization of intangible assets 1,975 2,052 2,270 2,766 Segment special charges — — — 10,377 Total Adjusted Segment EBITDA1 $94,281 $97,339 $95,281 $77,152
Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow Q3 2018 Q2 2018 Q3 2017 Net cash provided by operating activities $120,857 $34,615 $106,233 Purchases of property and equipment (11,621) (8,540) (6,894) Free Cash Flow1 $109,236 $26,075 $99,339 1See “End Notes: FTI Consulting Non-GAAP Financial Measures” for the definition of Free Cash Flow, which is a non-GAAP financial measure. (in thousands)
Reconciliation of Full Year 2018 Earnings Per Diluted Share Guidance to Adjusted Earnings Per Diluted Share Guidance Year Ended December 31, 2018 Low High Guidance on estimated earnings per common share - diluted (“EPS”) (GAAP) 1 $3.53 $3.73 Non-cash interest expense on convertible notes, net of tax 0.06 0.06 Gain on sale of business, net of tax (0.16) (0.16) Loss on early extinguishment of debt, net of tax 0.17 0.17 Guidance on estimated adjusted earnings per common share – diluted (“Adjusted EPS”) (Non-GAAP) 2 $3.60 $3.80 1 The forward-looking guidance on estimated 2018 EPS and Adjusted EPS does not reflect other gains and losses (all of which would be excluded from Adjusted EPS) related to the future impact of remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges and gain or loss on sale of a business, except for the actual charges taken during the nine months ended September 30, 2018, as these items are dependent on future events that are uncertain and difficult to predict. 2See “End Notes: FTI Consulting Non-GAAP Financial Measures” for the definition of Adjusted Earnings Per Diluted Share, which is a non-GAAP financial measure.
End NotesFTI Consulting Non-GAAP Financial Measures In this presentation, 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 ("GAAP"). Certain of these measures are considered “non-GAAP financial measures” under the Securities and Exchange Commission ("SEC") rules. Specifically, we have referred to the following non-GAAP financial measures in this presentation: 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 and Adjusted Segment EBITDA below in order to more fully define the components of certain non-GAAP financial measures in this presentation. We define Segment Operating Income as a segment’s share of Consolidated Operating Income. We define Total Segment Operating Income, a non-GAAP financial measure, as the total of Segment Operating Income for all segments, which excludes unallocated corporate expenses. We use Segment Operating Income 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 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 and losses on early extinguishment of debt. We believe that the non-GAAP financial measures, which exclude the effects of remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges and losses on early extinguishment of debt, when considered together with our GAAP financial results and GAAP 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 measures, considered along with corresponding GAAP measures, provide management and investors with additional information for comparison of our operating results with the operating results of other companies. 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, gain or loss on sale of a business and the impact of adopting the 2017 U.S. Tax Cuts and Jobs Act (“2017 Tax Act”). 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 this non-GAAP financial measure, which excludes the effects of the remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges, losses on early extinguishment of debt, non-cash interest expense on convertible notes, gain or loss on sale of a business and the impact of adopting the 2017 Tax Act, when considered together with our GAAP financial results, provides management and investors with an additional understanding of our business operating results, including underlying trends. We define Free Cash Flow as net cash provided by 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.
