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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
 
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 number 001-14875
 
 
FTI CONSULTING, 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.)
 
 
 
 
555 12th Street NW
 


Washington

 

DC
 
 
20004
(Address of Principal Executive Offices)
 
 
(Zip Code)
(202) 312-9100
(Registrant’s telephone number, including area code)
 
  
Securities registered pursuant to Section 12(b) of the Act:
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. 
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. 
Class
Outstanding at July 18, 2019
Common stock, par value $0.01 per share
37,540,197
 



FTI CONSULTING, INC. AND SUBSIDIARIES
INDEX
 
 
 
Page 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


PART I—FINANCIAL INFORMATION
FTI Consulting, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
Item 1.
Financial Statements
 
 
June 30,
 
December 31,
 
2019
 
2018
Assets
(Unaudited)
 
 
Current assets
 

 
 

Cash and cash equivalents
$
189,106

 
$
312,069

Accounts receivable:
 
 
 
Billed receivables
557,412

 
437,797

Unbilled receivables
429,285

 
319,205

Allowance for doubtful accounts and unbilled services
(243,295
)
 
(202,394
)
Accounts receivable, net
743,402

 
554,608

Current portion of notes receivable
29,606

 
29,228

Prepaid expenses and other current assets
57,141

 
69,448

Total current assets
1,019,255

 
965,353

Property and equipment, net
87,376

 
84,577

Operating lease assets
155,100

 

Goodwill
1,172,557

 
1,172,316

Other intangible assets, net
30,920

 
34,633

Notes receivable, net
76,150

 
84,471

Other assets
30,005

 
37,771

Total assets
$
2,571,363

 
$
2,379,121

Liabilities and Stockholders' Equity
 
 
 
Current liabilities
 
 
 
Accounts payable, accrued expenses and other
$
138,344

 
$
104,600

Accrued compensation
280,512

 
333,536

Billings in excess of services provided
45,022

 
44,434

Total current liabilities
463,878

 
482,570

Long-term debt, net
290,531

 
265,571

Noncurrent operating lease liabilities
177,110

 

Deferred income taxes
155,799

 
155,088

Other liabilities
65,033

 
127,067

Total liabilities
1,152,351

 
1,030,296

Commitments and contingent liabilities (Note 10)


 


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 — 37,612 (2019) and 38,147 (2018)
376

 
381

Additional paid-in capital
242,075

 
299,534

Retained earnings
1,323,970

 
1,196,727

Accumulated other comprehensive loss
(147,409
)
 
(147,817
)
Total stockholders' equity
1,419,012

 
1,348,825

Total liabilities and stockholders' equity
$
2,571,363

 
$
2,379,121

 
See accompanying notes to condensed consolidated financial statements

3


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,
 
2019
 
2018
 
2019
 
2018
Revenues
$
606,119

 
$
512,098

 
$
1,157,393

 
$
1,009,872

Operating expenses
 
 
 
 
 
 
 
Direct cost of revenues
386,266

 
330,318

 
735,332

 
651,435

Selling, general and administrative expenses
129,906

 
117,897

 
243,091

 
230,025

Amortization of other intangible assets
1,852

 
2,052

 
3,713

 
4,322

 
518,024

 
450,267

 
982,136

 
885,782

Operating income
88,095

 
61,831

 
175,257

 
124,090

Other income (expense)
 

 
 

 
 

 
 

Interest income and other
2,609

 
2,474

 
2,768

 
674

Interest expense
(4,793
)
 
(6,583
)
 
(9,539
)
 
(12,827
)
 
(2,184
)
 
(4,109
)
 
(6,771
)
 
(12,153
)
Income before income tax provision
85,911

 
57,722

 
168,486

 
111,937

Income tax provision
21,313

 
14,113

 
41,243

 
29,383

Net income
$
64,598

 
$
43,609

 
$
127,243

 
$
82,554

Earnings per common share — basic
$
1.75

 
$
1.18

 
$
3.44

 
$
2.24

Earnings per common share — diluted
$
1.69

 
$
1.14

 
$
3.33

 
$
2.18

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Foreign currency translation adjustments, net of tax
   expense of $0
$
(4,815
)
 
$
(23,683
)
 
$
408

 
$
(13,237
)
Total other comprehensive income (loss), net of tax
(4,815
)
 
(23,683
)
 
408

 
(13,237
)
Comprehensive income
$
59,783

 
$
19,926

 
$
127,651

 
$
69,317

 
See accompanying notes to condensed consolidated financial statements

4


FTI Consulting, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands)
(Unaudited)
 
 
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 income (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



5


 
Common Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
 
 
Shares
 
Amount
 
 
 
 
Total
Balance at December 31, 2017
37,729

 
$
377

 
$
266,035

 
$
1,045,774

 
$
(120,215
)
 
$
1,191,971

Net income

 
$

 
$

 
$
38,945

 
$

 
$
38,945

Other comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Cumulative translation adjustment

 

 

 

 
10,446

 
10,446

Issuance of common stock in connection with:
 
 
 
 
 
 
 
 
 
 
 
Exercise of options
153

 
1

 
5,793

 

 

 
5,794

Restricted share grants, less net
settled shares of 35
175

 
2

 
(1,581
)
 

 

 
(1,579
)
Stock units issued under incentive
   compensation plan

 

 
1,059

 

 

 
1,059

Purchase and retirement of common stock
(337
)
 
(3
)
 
(14,217
)
 

 

 
(14,220
)
Cumulative effect due to adoption of new accounting standard

 

 

 
342

 

 
342

Share-based compensation

 

 
4,676

 

 

 
4,676

Balance at March 31, 2018
37,720

 
$
377

 
$
261,765

 
$
1,085,061

 
$
(109,769
)
 
$
1,237,434

Net income

 
$

 
$

 
$
43,609

 
$

 
$
43,609

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Cumulative translation adjustment

 

 

 

 
(23,683
)
 
(23,683
)
Issuance of common stock in connection with:
 
 
 
 
 
 
 
 
 
 
 
Exercise of options
360

 
4

 
14,802

 

 

 
14,806

Restricted share grants, less net settled shares of 4
99

 
1

 
(253
)
 

 

 
(252
)
Share-based compensation

 

 
3,887

 

 

 
3,887

Balance at June 30, 2018
38,179

 
$
382

 
$
280,201

 
$
1,128,670

 
$
(133,452
)
 
$
1,275,801


 
See accompanying notes to condensed consolidated financial statements

6


FTI Consulting, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
 
 
Six Months Ended June 30,
Operating activities
2019
 
2018
Net income
$
127,243

 
$
82,554

Adjustments to reconcile net income to net cash used in operating
   activities:
 
 
 
Depreciation and amortization
14,304

 
16,253

Amortization and impairment of other intangible assets
3,713

 
4,322

Acquisition-related contingent consideration
186

 
232

Provision for doubtful accounts
6,260

 
8,710

Non-cash share-based compensation
10,207

 
8,563

Amortization of debt discount and issuance costs
5,748

 
993

Other
225

 
798

Changes in operating assets and liabilities, net of effects from
   acquisitions:
 
 
 
Accounts receivable, billed and unbilled
(186,854
)
 
(99,299
)
Notes receivable
8,343

 
4,214

Prepaid expenses and other assets
(1,953
)
 
(4,151
)
Accounts payable, accrued expenses and other
(11,606
)
 
352

Income taxes
24,424

 
13,143

Accrued compensation
(55,183
)
 
(58,547
)
Billings in excess of services provided
505

 
(12,722
)
Net cash used in operating activities
(54,438
)
 
(34,585
)
Investing activities
 
 
 
Purchases of property and equipment
(20,661
)
 
(16,220
)
Other
69

 
689

Net cash used in investing activities
(20,592
)
 
(15,531
)
Financing activities
 
 
 
Borrowings (repayments) under revolving line of credit, net
20,000

 
(25,000
)
Deposits
1,014

 
2,602

Purchase and retirement of common stock
(66,893
)
 
(14,220
)
Net issuance of common stock under equity compensation plans
1,009

 
18,740

Payments for business acquisition liabilities
(2,282
)
 
(3,029
)
Net cash used in financing activities
(47,152
)
 
(20,907
)
Effect of exchange rate changes on cash and cash equivalents
(781
)
 
(2,382
)
Net decrease in cash and cash equivalents
(122,963
)
 
(73,405
)
Cash and cash equivalents, beginning of period
312,069

 
189,961

Cash and cash equivalents, end of period
$
189,106

 
$
116,556

Supplemental cash flow disclosures
 
 
 
Cash paid for interest
$
3,467

 
$
13,020

Cash paid for income taxes, net of refunds
$
16,820

 
$
16,137

Non-cash investing and financing activities:
 
 
 
Issuance of stock units under incentive compensation plans
$
1,346

 
$
1,059

Purchase and retirement of common stock not yet paid
$
3,322

 
$

 
See accompanying notes to condensed consolidated financial statements

7


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
Basis of Presentation
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, 2018 filed with the SEC.  
Leases
As of January 1, 2019, the Company adopted Accounting Standards Update ("ASU") 2016-02, Leases, which was amended in some respects by subsequent ASUs (collectively “ASC 842”) and supersedes existing lease guidance. The standard requires us to record right-of-use ("ROU") assets and corresponding lease liabilities on the balance sheet and disclose key quantitative and qualitative information about our lease contracts.
Under ASC 842, we determine if a contract is a leasing arrangement at inception. ROU assets represent our right to control the use of an identified asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. We use the incremental borrowing rate on the commencement date in determining the present value of our lease payments. We recognize operating lease expense for our operating leases on a straight-line basis over the lease term, which may include renewal or termination options that are reasonably certain of exercise.
Lease and non-lease components are accounted for together as a single lease component for operating leases associated with our office space and our equipment leases. We apply a portfolio approach for certain equipment leases to effectively account for the operating lease ROU assets and liabilities.
2. New Accounting Standards
 Recently Adopted Accounting Standards
In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, Leases, which was amended in some respects by subsequent ASUs. We adopted ASC 842 using the modified retrospective basis for reporting. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed us to carry forward the historical lease classification for existing leases on the adoption date, and allowed us not to reassess whether an existing contract contains a lease or initial direct costs. As permitted by the guidance, prior comparative periods will not be adjusted under this method.
See Note 1, "Basis of Presentation and Significant Accounting Policies" for a description of the significant accounting policies for our operating leases. See Note 9, "Leases" for the disclosures required under ASC 842. The adoption of this standard resulted in recognition of ROU assets in the amount of $148.5 million and lease liabilities in the amount of $206.7 million for operating leases on our Condensed Consolidated Balance Sheets as of January 1, 2019. Our existing deferred rent and cease-use liabilities were $62.3 million as of December 31, 2018 and were included as a reduction to the initial measurement of our operating lease assets. Our existing prepaid rent balance was $4.1 million as of December 31, 2018 and was included as a reduction to the initial measurement of our operating lease liabilities. There was no material impact on the Condensed Consolidated Statements of Comprehensive Income, Condensed Consolidated Statements of Stockholders’ Equity or Condensed Consolidated Statements of Cash Flows.

8


Accounting Standards Not Yet Adopted
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for fair value measurements. The guidance promotes a framework to help improve the effectiveness of disclosures in the notes to the financial statements and is effective for annual and interim periods beginning after December 15, 2019, although early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Internal Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which requires the Company to capitalize implementation costs of a hosting arrangement that is a service contract and expense those costs over the term of the hosting arrangement. The guidance is effective for annual and interim periods beginning after December 15, 2019 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 Per 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, 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 will have a dilutive impact on earnings per common share when the average market price of our common stock for a given period exceeds the conversion price of $101.38 per share. As we did not meet this threshold during the three and six months ended June 30, 2019, any shares of common stock potentially issuable upon conversion of the 2023 Convertible Notes are excluded from the calculation of diluted earnings per share.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Numerator — basic and diluted
 
 
 
 
 
 
 
Net income
$
64,598

 
$
43,609

 
$
127,243

 
$
82,554

Denominator
 
 
 
 
 
 
 
Weighted average number of common shares outstanding — basic
36,960

 
37,001

 
36,970

 
36,851

Effect of dilutive stock options
459

 
558

 
445

 
430

Effect of dilutive restricted shares
749

 
712

 
778

 
661

Weighted average number of common shares outstanding — diluted
38,168

 
38,271

 
38,193

 
37,942

Earnings per common share — basic
$
1.75

 
$
1.18

 
$
3.44

 
$
2.24

Earnings per common share — diluted
$
1.69

 
$
1.14

 
$
3.33

 
$
2.18

Antidilutive stock options and restricted shares
25

 
44

 
38

 
330


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 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 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 for these arrangements based on the proportional performance related to

9


individual performance obligations within each arrangement; however, these arrangements generally 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 by applying the proportional performance method.
Revenues are recognized when we satisfy a performance obligation by transferring services promised in a contract to a customer and in an amount that reflects the consideration that we expect to receive in exchange for those services. Performance obligations in our contracts represent distinct or separate services that we provide to our customers.
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 was $21.2 million and $23.7 million for the three and six months ended June 30, 2019, respectively, and $4.5 million and $6.5 million for the three and six months ended June 30, 2018, respectively.
Unfulfilled performance obligations represent the remaining contract transaction prices allocated to the performance obligations that are unsatisfied. Unfulfilled performance obligations primarily consist of fees not yet recognized on a proportional performance basis for fixed fee arrangements and performance-based and contingent arrangements. As of June 30, 2019 and December 31, 2018, the aggregate amount of the remaining contract transaction price allocated to unfulfilled performance obligations was $9.5 million and $8.8 million, respectively. We expect to recognize the majority of the related revenues over the next 24 months.
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 $6.8 million as of June 30, 2019 and $2.4 million as of December 31, 2018.
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 us upfront fees before we begin work for them. The contract liability balance was immaterial as of June 30, 2019 and December 31, 2018.
5. Accounts Receivable and Allowance for Doubtful Accounts
Timing of revenue recognition often differs from 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. Payment terms and conditions vary depending on the jurisdiction, market and type of service and whether regulatory or other third-party approvals are required. In addition, contracts may be negotiated per the client’s request, or at times we are asked to execute contracts in a form provided by customers that might include different terms. Our standard contract terms generally include a requirement of payment within 30 days where no contingencies exist.
We record adjustments to 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 receivables. The allowance for doubtful accounts and unbilled services is also adjusted after the related work has been billed to the client and we discover that collectability is not reasonably assured. These adjustments are recorded to “Selling, general and administrative expenses” ("SG&A") on the Condensed Consolidated Statements of Comprehensive Income. Our bad debt expense totaled $2.5 million and $6.3 million for the three and six months ended June 30, 2019, respectively, and $3.0 million and $8.7 million for the three and six months ended June 30, 2018, respectively.

10


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
 
Forensic and
Litigation
Consulting
 
Economic
Consulting
 
Technology
 
Strategic
Communications
 
Total
Balance at December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
Goodwill
$
450,997

 
$
231,537

 
$
268,547

 
$
96,723

 
$
318,651

 
$
1,366,455

Accumulated goodwill impairment

 

 

 

 
(194,139
)
 
(194,139
)
Goodwill, net at December 31, 2018
450,997


231,537


268,547


96,723


124,512


1,172,316

Foreign currency translation adjustment and other
292

 
(29
)
 
(14
)
 

 
(8
)
 
241

Balance at June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
Goodwill
451,289


231,508


268,533


96,723

 
318,643

 
1,366,696

Accumulated goodwill impairment

 

 

 

 
(194,139
)
 
(194,139
)
Goodwill, net at June 30, 2019
$
451,289


$
231,508


$
268,533


$
96,723


$
124,504


$
1,172,557


Other Intangible Assets
Other intangible assets with finite lives, comprised primarily of customer relationships, are amortized over their estimated useful lives. We recorded amortization expense of $1.9 million and $3.7 million for the three and six months ended June 30, 2019, respectively, and $2.1 million and $4.3 million for the three and six months ended June 30, 2018, respectively.
We estimate our future amortization expense for our intangible assets with finite lives to be as follows: 
Year
As of
June 30, 2019(1)
2019 (remaining)
$
3,591

2020
7,172

2021
6,653

2022
4,909

2023
1,691

Thereafter
1,804

 
$
25,820


(1) 
Actual amortization expense to be reported in future periods could differ from these estimates because of new intangible asset acquisitions, changes in useful lives or other relevant factors or changes.

11


7. Financial Instruments
The following table presents the carrying amounts and estimated fair values of our financial instruments by hierarchy level as of June 30, 2019 and December 31, 2018:
 
June 30, 2019
 
 
 
Hierarchy Level
 
Carrying
Amount
 
Level 1
 
Level 2
 
Level 3
Liabilities
 
 
 
 
 
 
 
Acquisition-related contingent consideration, including
current portion (1)
$
2,142

 
$

 
$

 
$
2,142

Long-term debt (2)
290,531

 

 
353,792

 

Total
$
292,673

 
$

 
$
353,792

 
$
2,142

 
December 31, 2018
 
 
 
Hierarchy Level
 
Carrying
Amount
 
Level 1
 
Level 2
 
Level 3
Liabilities
 
 
 
 
 
 
 
Acquisition-related contingent consideration, including
current portion (1)
$
2,960

 
$

 
$

 
$
2,960

Long-term debt (2)
265,571

 

 
291,837

 

Total
$
268,531

 
$

 
$
291,837

 
$
2,960

 
(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 fair values of financial instruments not included in this table are estimated to be equal to their carrying values as of June 30, 2019 and December 31, 2018.
We estimate the fair value of our 2023 Convertible Notes based on their last actively traded prices. The fair value of our borrowings on our senior secured bank revolving credit facility approximates the carrying amount. The fair value of our debt 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 a probability-weighted discounted cash flow model. This fair value estimate represents a Level 3 measurement as it is based on significant inputs not observed in the market and reflect our own assumptions. The significant unobservable inputs used in the fair value measurements of our acquisition-related contingent consideration are our measures of the future profitability and related cash flows and discount rates. The fair value of the contingent consideration is reassessed at each reporting period by the Company based on additional information as it becomes available.
Any change in the fair value of an acquisition’s contingent consideration liability results in a remeasurement gain or loss that is recorded in “Selling, general and administrative expenses” on the Consolidated Statements of Comprehensive Income. During the three and six months ended June 30, 2019 and 2018, there was no change in the estimated fair value of future expected contingent consideration payments.

12


8. Debt
The table below summarizes the components of the Company’s debt: 
 
June 30,
2019
 
December 31,
2018
2023 Convertible Notes
$
316,250

 
$
316,250

Credit Facility
20,000

 

Total debt
336,250

 
316,250

Less: deferred debt discount
(39,753
)
 
(43,998
)
Less: deferred debt issue costs
(5,966
)
 
(6,681
)
Long-term debt, net (1)
$
290,531

 
$
265,571

Additional paid-in capital
$
35,306

 
$
35,306

Discount attribution to equity
(1,175
)
 
(1,175
)
Equity component, net
$
34,131

 
$
34,131

 
(1) 
There were no current portions of long-term debt as of June 30, 2019 and December 31, 2018.
2023 Convertible Notes
On August 20, 2018, we issued the 2023 Convertible Notes with 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 an initial conversion rate of 9.8643 shares of our common stock per $1,000 principal amount of the 2023 Convertible Notes (equivalent to an initial conversion price of approximately $101.38 per share of common stock). The circumstances required to allow the holders to convert their 2023 Convertible Notes were not met as of June 30, 2019.
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,
 
2019
 
2018
 
2019
 
2018
Contractual interest expense
$
1,581

 
$

 
$
3,162

 
$

Amortization of debt discount (1)
2,137

 

 
4,245

 

Total
$
3,718

 
$

 
$
7,407

 
$

 
(1) 
The effective interest rate of the liability component was 5.45% as of June 30, 2019. 
Credit Facility
On June 26, 2015, we entered into a credit agreement, which provides for a $550.0 million senior secured bank revolving credit facility (“Original Credit Facility”) maturing on June 26, 2020. In November 2018, we amended and restated the credit agreement to, among other things, extend the maturity of the Original Credit Facility to November 30, 2023 and

13


incurred an additional $1.7 million of debt issuance costs (the Original Credit Facility as amended and restated, the “Credit Facility”).
The Company has 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 agreement are not contractually required or expected to be liquidated for more than one year from the applicable balance sheet date. Additionally, $1.0 million of the borrowing limit under the Credit Facility was utilized for letters of credit as of June 30, 2019. 
There were $2.8 million and $3.6 million of unamortized debt issue costs related to the Credit Facility as of June 30, 2019 and December 31, 2018, respectively. These amounts were 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. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to nine 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
 
As of
June 30, 2019
Assets
 
 
 
 
  Operating lease assets
 
Operating lease assets
 
$
155,100

Total lease assets
 
 
 
$
155,100

Liabilities
 
 
 
 
Current
 
 
 
 
  Operating lease liabilities
 
Accounts payable, accrued expenses and other
 
$
29,653

Noncurrent
 
 
 
 
  Operating lease liabilities
 
Noncurrent operating lease liabilities
 
177,110

Total lease liabilities
 
 
 
$
206,763



The table below summarizes total lease costs for the three and six months ended June 30, 2019, respectively:
Lease Cost
Three Months Ended
June 30, 2019
 
Six Months Ended
June 30, 2019
Operating lease costs
$
11,044

 
$
21,909

Short-term lease costs
566

 
1,429

Variable lease costs
2,685

 
5,698

Sublease income
(1,246
)
 
(2,443
)
Total lease cost
$
13,049

 
$
26,593



We sublease certain of our leased office spaces to third parties. Our sublease portfolio consists of leases of office space that we have abandoned before the lease term expiration. Operating lease expense on abandoned 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 $2.7 million in 2019, $4.9 million in 2020, $4.5 million in 2021, $0.7 million in 2022, $0.6 million in 2023 and $0.9 million in years beyond 2023.


14


The maturity analysis below summarizes the remaining future undiscounted cash flows for our operating leases, a reconciliation to operating lease liabilities reported on the Condensed Consolidated Balance Sheet, our weighted-average remaining lease term and weighted average discount rate:
 
As of
June 30, 2019
 
2019 (remaining)
$
15,170

2020
49,841

2021
46,881

2022
28,514

2023
23,973

Thereafter
88,704

   Total future lease payments
253,083

   Less: imputed interest
(46,320
)
Total
$
206,763

 
 
Weighted Average Remaining Lease Term (years)
 
   Operating leases
6.7

 
 
Weighted Average Discount Rate
 
   Operating leases
5.6
%


The table below summarizes cash paid for our operating lease liabilities and other non-cash information:
 
Six Months Ended
June 30, 2019
Cash paid for amounts included in the measurement of operating lease liabilities
$
23,199

 
 
Operating lease assets obtained in exchange for lease liabilities
$
19,162


Operating Lease Commitments
Under Topic 840, our future minimum payments for all operating lease obligations that have initial non-cancelable lease terms exceeding one year, net of rental income from subleases as of December 31, 2018 were as follows:
 
Operating Leases
 
Sublease Rental Income
 
2019
$
49,757

 
$
4,760

2020
47,084

 
3,944

2021
44,480

 
3,864

2022
24,471

 
707

2023
20,309

 
614

Thereafter
75,190

 
939

Total
$
261,291

 
$
14,828


10. Commitments and Contingencies
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.  

15


11. Share-Based Compensation
During the six months ended June 30, 2019, we granted 198,113 restricted stock awards, 24,108 restricted stock units and 113,124 performance-based restricted stock units. These awards are recorded as equity on the Condensed Consolidated Balance Sheets. During the six months ended June 30, 2019, stock options exercisable for up to 661 shares and 32,310 shares of restricted stock were forfeited prior to the completion of the applicable vesting requirements.
Total share-based compensation expense, net of forfeitures, for the three and six months ended June 30, 2019 and 2018 is detailed in the following table:   
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Income Statement Classification
2019
 
2018
 
2019
 
2018
Direct cost of revenues
$
2,559

 
$
2,427

 
$
7,802

 
$
6,206

Selling, general and administrative expenses
2,698

 
3,158

 
5,130

 
5,347

Total share-based compensation expense
$
5,257


$
5,585


$
12,932


$
11,553


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 and February 21, 2019, our Board of Directors authorized an additional $100.0 million, respectively, increasing the Repurchase Program to an aggregate authorization of $400.0 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, 2019, we have $102.4 million available under the Repurchase Program to repurchase additional shares.
The following table details our stock repurchases under the Repurchase Program: 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Shares of common stock repurchased and retired
580

 

 
908

 
337

Average price paid per share
$
83.34

 
$

 
$
77.33

 
$
42.17

Total cost
$
48,320

 
$

 
$
70,197

 
$
14,213

  
13. Segment Reporting
We manage our business in five reportable segments: Corporate Finance & Restructuring ("Corporate Finance"), Forensic and Litigation Consulting ("FLC"), Economic Consulting, Technology and Strategic Communications.
Our Corporate Finance segment focuses on the strategic, operational, financial and capital needs of our clients around the world and delivers a wide range of service offerings related to restructuring, business transformation and transaction support. Our 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.
Our FLC segment provides law firms, companies, government clients and other interested parties with multidisciplinary, independent dispute advisory, investigations, data analytics, forensic accounting, business intelligence and risk mitigation services, as well as interim management and performance improvement services for our health solutions practice clients.
Our Economic Consulting segment provides law firms, companies, government entities and other interested parties with analysis of complex economic issues for use in legal, regulatory and international arbitration proceedings, strategic decision making and public policy debates in the U.S. and around the world.
Our Technology segment provides corporations and law firms with a comprehensive and global portfolio of consulting and services for information governance, privacy and security, electronic discovery ("e-discovery") and insight analytics. Our consulting expertise enables clients to more confidently govern, secure, find, analyze and rapidly understand their data in the context of compliance and risk.

16


Our Strategic Communications segment designs and executes communications strategies for management teams and boards of directors to help them seize opportunities, manage financial, regulatory and reputational challenges, navigate market disruptions, articulate their brand, stake a competitive position, and preserve and grow their operations.
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, 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 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,
 
2019
 
2018
 
2019
 
2018
Revenues
 
 
 
 
 
 
 
Corporate Finance
$
190,003

 
$
141,355

 
$
350,969

 
$
284,277

FLC
145,870

 
133,527

 
284,867

 
261,566

Economic Consulting
155,502

 
133,308

 
297,773

 
266,417

Technology
55,632

 
46,429

 
106,968

 
87,343

Strategic Communications
59,112

 
57,479

 
116,816

 
110,269

Total revenues
$
606,119


$
512,098


$
1,157,393


$
1,009,872

Adjusted Segment EBITDA
 
 
 
 
 
 
 
Corporate Finance
$
50,492

 
$
35,777

 
$
87,853

 
$
70,581

FLC
28,241

 
27,615

 
60,058

 
53,372

Economic Consulting
23,313

 
15,472

 
47,353

 
34,608

Technology
12,875

 
7,508

 
25,598

 
13,240

Strategic Communications
10,474

 
10,967