SEC Filing | FTI Consulting, Inc.

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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 March 31, 2020



☐	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 April 23, 2020
Common Stock, $0.01 par value	37,098,282

FTI CONSULTING, INC. AND SUBSIDIARIES

INDEX



		Page
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets—March 31, 2020 and December 31, 2019	3

	Condensed Consolidated Statements of Comprehensive Income—Three Months Ended March 31, 2020 and 2019	4

	Condensed Consolidated Statements of Stockholders’ Equity—Three Months Ended March 31, 2020 and 2019	5

	Condensed Consolidated Statements of Cash Flows—Three Months Ended March 31, 2020 and 2019	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.	Controls and Procedures	36

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 3.	Defaults Upon Senior Securities	39

Item 4.	Mine Safety Disclosures	39

Item 5.	Other Information	39

Item 6.	Exhibits	40

SIGNATURES		41

PART I—FINANCIAL INFORMATION

FTI Consulting, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except per share data)



Item 1.	Financial Statements



	March 31,			December 31,
	2020			2019
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	223,063		$	369,373
Accounts receivable:
Billed receivables	584,620			540,584
Unbilled receivables	436,944			418,288
Allowance for doubtful accounts and unbilled services	( 284,666		)	( 265,500		)
Accounts receivable, net	736,898			693,372
Current portion of notes receivable	31,942			35,106
Prepaid expenses and other current assets	74,544			80,810
Total current assets	1,066,447			1,178,661
Property and equipment, net	92,852			93,672
Operating lease assets	149,570			159,777
Goodwill	1,191,948			1,202,767
Other intangible assets, net	35,682			38,432
Notes receivable, net	63,801			69,033
Other assets	36,881			40,800
Total assets	$	2,637,181		$	2,783,142
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable, accrued expenses and other	$	170,930		$	158,936
Accrued compensation	240,192			416,903
Billings in excess of services provided	40,219			36,698
Total current liabilities	451,341			612,537
Long-term debt, net	328,193			275,609
Noncurrent operating lease liabilities	163,594			176,378
Deferred income taxes	152,347			151,352
Other liabilities	73,022			78,124
Total liabilities	1,168,497			1,294,000
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 — 37,110 (2020) and 37,390 (2019)	371			374
Additional paid-in capital	170,062			216,162
Retained earnings	1,470,200			1,413,453
Accumulated other comprehensive loss	( 171,949		)	( 140,847		)
Total stockholders' equity	1,468,684			1,489,142
Total liabilities and stockholders' equity	$	2,637,181		$	2,783,142

See accompanying notes to condensed consolidated financial statements

FTI Consulting, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(in thousands, except per share data)

(Unaudited)



	Three Months Ended March 31,
	2020			2019
Revenues	$	604,593		$	551,274
Operating expenses
Direct cost of revenues	402,247			349,066
Selling, general and administrative expenses	126,959			113,185
Amortization of other intangible assets	2,331			1,861
	531,537			464,112
Operating income	73,056			87,162
Other income (expense)
Interest income and other	5,017			159
Interest expense	( 4,861		)	( 4,746		)
	156			( 4,587		)
Income before income tax provision	73,212			82,575
Income tax provision	16,465			19,930
Net income	$	56,747		$	62,645
Earnings per common share — basic	$	1.56		$	1.69
Earnings per common share — diluted	$	1.49		$	1.64
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments, net of tax expense of $0	$	( 31,102	)	$	5,223
Total other comprehensive income (loss), net of tax	( 31,102		)	5,223
Comprehensive income	$	25,645		$	67,868

See accompanying notes to condensed consolidated financial statements

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			Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss			Total
Balance at December 31, 2019	37,390		$	374		$	216,162		$	1,413,453	$	( 140,847	)	$	1,489,142
Net income	—		$	—		$	—		$	56,747	$	—		$	56,747
Other comprehensive loss:
Cumulative translation adjustment	—		—			—			—		( 31,102		)	( 31,102		)
Issuance of common stock in connection with:
Exercise of options	34		1			1,206			—		—			1,207
Restricted share grants, less net settled shares of 58	136		1			( 6,768		)	—		—			( 6,767		)
Stock units issued under incentive compensation plan	—		—			2,314			—		—			2,314
Purchase and retirement of common stock	( 450	)	( 5		)	( 50,306		)	—		—			( 50,311		)
Share-based compensation	—		—			7,454			—		—			7,454
Balance at March 31, 2020	37,110		$	371		$	170,062		$	1,470,200	$	( 171,949	)	$	1,468,684



	Common Stock					Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss
	Shares		Amount			Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss			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

See accompanying notes to condensed consolidated financial statements

FTI Consulting, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)



	Three Months Ended March 31,
	2020			2019
Operating activities
Net income	$	56,747		$	62,645
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	7,823			7,066
Amortization and impairment of other intangible assets	2,331			1,861
Acquisition-related contingent consideration	506			93
Provision for doubtful accounts	3,872			3,784
Share-based compensation	7,454			6,393
Amortization of debt discount and issuance costs	2,978			2,860
Deferred income taxes	545			8,752
Other	—			( 42		)
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable, billed and unbilled	( 60,963		)	( 95,746		)
Notes receivable	7,051			9,653
Prepaid expenses and other assets	9,442			5,979
Accounts payable, accrued expenses and other	11,136			( 450		)
Income taxes	( 667		)	2,534
Accrued compensation	( 176,070		)	( 123,260		)
Billings in excess of services provided	4,253			5,792
Net cash used in operating activities	( 123,562		)	( 102,086		)
Investing activities
Purchases of property and equipment	( 8,236		)	( 10,153		)
Other	8			72
Net cash used in investing activities	( 8,228		)	( 10,081		)
Financing activities
Borrowings under revolving line of credit	55,000			—
Repayments under revolving line of credit	( 5,000		)	—
Purchase and retirement of common stock	( 49,135		)	( 21,883		)
Net issuance of common stock under equity compensation plans	( 5,583		)	( 605		)
Payments for business acquisition liabilities	—			( 1,282		)
Deposits and other	3,870			1,003
Net cash used in financing activities	( 848		)	( 22,767		)
Effect of exchange rate changes on cash and cash equivalents	( 13,672		)	2,106
Net decrease in cash and cash equivalents	( 146,310		)	( 132,828		)
Cash and cash equivalents, beginning of period	369,373			312,069
Cash and cash equivalents, end of period	$	223,063		$	179,241
Supplemental cash flow disclosures
Cash paid for interest	$	3,136		$	3,450
Cash paid for income taxes, net of refunds	$	16,588		$	8,644
Non-cash investing and financing activities:
Issuance of stock units under incentive compensation plans	$	2,314		$	1,346

See accompanying notes to condensed consolidated financial statements

FTI Consulting, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(dollar and share amounts in tables in thousands, except per share data)

(Unaudited)

1. Basis of Presentation and Significant Accounting Policies

The unaudited condensed consolidated financial statements of FTI Consulting, Inc., including its consolidated subsidiaries (collectively, the “Company,” “we,” “our” or “FTI Consulting”), presented herein, have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and under the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Some of the information and footnote disclosures normally included in annual financial statements have been condensed or omitted pursuant to those rules and regulations. Certain prior period amounts have been reclassified to conform to the current period presentation. In management’s opinion, the interim financial statements reflect all adjustments that are necessary for a fair presentation of the results for the interim periods presented. All adjustments made were normal recurring accruals. Results of operations for the interim periods presented herein are not necessarily indicative of results of operations for a full year. These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC.

2. New Accounting Standards

Recently Adopted Accounting Standards

In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-15 ("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 companies to capitalize implementation costs of a hosting arrangement that is a service contract and expense those costs over the term of the hosting arrangement. On January 1, 2020, we prospectively adopted ASU 2018-15 for eligible costs incurred on or after the adoption date. The adoption of this standard may result in the recognition of additional internal use software costs, which are included in the “Property and equipment, net” financial statement line item on the Condensed Consolidated Balance Sheets. There was no material impact on the Condensed Consolidated Balance Sheets as of March 31, 2020 or on the Condensed Consolidated Statements of Comprehensive Income, Condensed Consolidated Statements of Stockholders’ Equity or Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020.

Accounting Standards Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes , which is intended to reduce the complexity in accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying and amending existing guidance. The amendments in this ASU are effective for annual periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, although early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance on its consolidated financial statements.

3. Earnings 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 had a dilutive impact on earnings per common share for the three months ended March 31, 2020 , as the average market price per share of our common stock for the period exceeded the conversion price of $ 101.38 per share. See Note 8, "Debt" for additional information about the 2023 Convertible Notes.



	Three Months Ended March 31,
	2020		2019
Numerator — basic and diluted
Net income	$	56,747	$	62,645
Denominator
Weighted average number of common shares outstanding — basic	36,415		36,981
Effect of dilutive convertible notes	433		—
Effect of dilutive stock options	461		431
Effect of dilutive restricted shares	881		807
Weighted average number of common shares outstanding — diluted	38,190		38,219
Earnings per common share — basic	$	1.56	$	1.69
Earnings per common share — diluted	$	1.49	$	1.64
Antidilutive stock options and restricted shares	12		49

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 earned to date by applying the proportional performance method. Generally, these arrangements have one performance obligation.

•

Performance-based or contingent arrangements represent forms of variable consideration. In these arrangements, our fees are based on the attainment of contractually defined objectives with our client, such as completing a business transaction or assisting the client in achieving a specific business objective. We recognize revenues earned to date in an amount that is probable not to reverse and by applying the proportional performance method when the criteria for over time revenue recognition are met.

Revenues are recognized when we satisfy a performance obligation by transferring services promised in a contract to a customer and in an amount that 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 in the current period, which related to performance obligations satisfied or partially satisfied in a prior period, was $ 8.3 million and $ 6.4 million for the three months ended March 31, 2020 and 2019 , 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 March 31, 2020 and December 31, 2019 , the aggregate amount of the remaining contract transaction price allocated to unfulfilled performance obligations was $ 1.4 million and $ 2.3 million , respectively. We expect to recognize the majority of the related revenues over the next 24 months . We elected to utilize the optional exemption to exclude from this disclosure fixed-fee and performance-based and contingent arrangements with an original expected duration of one year or less and to exclude our time and expense arrangements for which revenues are recognized using the right-to-invoice practical expedient.

Contract assets are defined as assets for which we have recorded revenue but are not yet entitled to receive our fees because certain events, such as completion of the measurement period or client approval, must occur. The contract asset balance was immaterial as of March 31, 2020 and $ 1.3 million as of December 31, 2019 .

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 March 31, 2020 and December 31, 2019 .

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. Our contract terms generally include a requirement of payment within 30 days when no contingencies exist. Payment terms and conditions vary depending on the jurisdiction, market and type of service, and whether regulatory or other third-party approvals are required. At times, we may execute contracts in a form provided by customers that might include different payment terms and contracts may be negotiated at the client’s request.

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 $ 3.9 million and $ 3.8 million for the three months ended March 31, 2020 and 2019 , respectively. Our write-offs totaled $ 6.1 million and $ 2.5 million for the three months ended March 31, 2020 and 2019 , respectively.

6. Goodwill and Other Intangible Assets

Goodwill

The table below summarizes the changes in the carrying amount of goodwill by reportable segment:



	Corporate Finance & Restructuring			Forensic and Litigation Consulting			Economic Consulting			Technology			Strategic Communications			Total
Balance at December 31, 2019
Goodwill	$	478,842		$	232,120		$	268,677		$	96,770		$	320,497		$	1,396,906
Accumulated goodwill impairment	—			—			—			—			( 194,139		)	( 194,139		)
Goodwill, net at December 31, 2019	478,842			232,120			268,677			96,770			126,358			1,202,767
Foreign currency translation adjustment and other	( 3,771		)	( 1,802		)	( 331		)	( 81		)	( 4,834		)	( 10,819		)
Balance at March 31, 2020
Goodwill	475,071			230,318			268,346			96,689			315,663			1,386,087
Accumulated goodwill impairment	—			—			—			—			( 194,139		)	( 194,139		)
Goodwill, net at March 31, 2020	$	475,071		$	230,318		$	268,346		$	96,689		$	121,524		$	1,191,948

Other Intangible Assets

Other intangible assets were as follows:



	March 31, 2020						December 31, 2019
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortizing intangible assets
Customer relationships	$	97,870	$	77,171	$	20,699	$	99,613	$	76,808	$	22,805
Trademarks	9,730		1,051		8,679		9,855		653		9,202
Acquired software and other	3,319		2,115		1,204		3,386		2,061		1,325
	110,919		80,337		30,582		112,854		79,522		33,332
Non-amortizing intangible assets
Trademarks	5,100		—		5,100		5,100		—		5,100
Total	$	116,019	$	80,337	$	35,682	$	117,954	$	79,522	$	38,432

Other intangible assets with finite lives are amortized over their estimated useful lives. We recorded amortization expense of $ 2.3 million and $ 1.9 million for the three months ended March 31, 2020 and 2019 , respectively.

We estimate our future amortization expense for our intangible assets with finite lives to be as follows:



Year	As of March 31, 2020 ⁽¹⁾
2020 (remaining)	$	6,939
2021	8,740
2022	6,944
2023	3,564
2024	2,177
Thereafter	2,218
	$	30,582


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

7. Financial Instruments

The following table presents the carrying amounts and estimated fair values of our financial instruments by hierarchy level as of March 31, 2020 and December 31, 2019 :



	March 31, 2020
			Hierarchy Level (Fair Value)
	Carrying Amount		Level 1		Level 2		Level 3
Liabilities
Acquisition-related contingent consideration, including current portion ⁽¹⁾	$	15,184	$	—	$	—	$	15,184
2023 Convertible Notes ⁽²⁾	278,193		—		417,937		—
Total	$	293,377	$	—	$	417,937	$	15,184



	December 31, 2019
			Hierarchy Level (Fair Value)
	Carrying Amount		Level 1		Level 2		Level 3
Liabilities
Acquisition-related contingent consideration, including current portion ⁽¹⁾	$	14,826	$	—	$	—	$	14,826
2023 Convertible Notes ⁽²⁾	275,609		—		398,016		—
Total	$	290,435	$	—	$	398,016	$	14,826


⁽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 the tables above are estimated to be equivalent to their carrying values as of March 31, 2020 and December 31, 2019 .

We estimate the fair value of our 2023 Convertible Notes based on their last actively traded prices. The fair value of our 2023 Convertible Notes is classified within Level 2 of the fair value hierarchy because it is traded in less active markets.

We estimate the fair value of acquisition-related contingent consideration using either a probability-weighted discounted cash flow model or a Monte Carlo simulation. These fair value estimates represent Level 3 measurements as they are based on significant inputs not observed in the market and reflect our own assumptions. We have multiple valuation models that use different inputs and assumptions based on the timing of the acquisitions. As a result, the significant unobservable inputs used in these models vary. The acquisition-related contingent consideration subject to the probability-weighted discounted cash flow model was valued using significant unobservable inputs including a discount rate of 13.5 % and future cash flows. The acquisition-related contingent consideration subject to the Monte Carlo simulation was valued using significant unobservable inputs including a volatility rate of 30.0 % , a discount rate of 13.6 % , which reflects the weighted average of our cost of debt and adjusted cost of equity of the acquired company, and future cash flows. Significant increases (decreases) in these unobservable inputs in isolation would result in a significantly lower (higher) fair value. We reassess the fair value of our acquisition-related contingent consideration at each reporting period based on additional information as it becomes available.

The change in our liability for acquisition-related contingent consideration for our Level 3 financial instruments is as follows:



	Liability for Acquisition-Related Contingent Consideration
Balance at December 31, 2019	$	14,826
Accretion for time value of money ⁽¹⁾	506
Foreign currency translation adjustment ⁽²⁾	( 148		)
Balance at March 31, 2020	$	15,184



	Liability for Acquisition-Related Contingent Consideration
Balance at December 31, 2018	$	3,698
Accretion for time value of money ⁽¹⁾	93
Balance at March 31, 2019	$	3,791


⁽¹⁾	Accretion for the time value of money is included in "Selling, general and administrative expenses" on the Condensed Consolidated Statements of Comprehensive Income.


⁽²⁾	Foreign currency translation adjustments are included in "Other comprehensive income (loss), net of tax" on the Condensed Consolidated Statements of Comprehensive Income.

8. Debt

The table below summarizes the components of the Company’s debt:



	March 31, 2020			December 31, 2019
2023 Convertible Notes	$	316,250		$	316,250
Credit Facility	50,000			—
Total debt	366,250			316,250
Less: deferred debt discount	( 33,168		)	( 35,393		)
Less: deferred debt issue costs	( 4,889		)	( 5,248		)
Long-term debt, net ⁽¹⁾	$	328,193		$	275,609
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 March 31, 2020 and December 31, 2019 .

2023 Convertible Notes

On August 20, 2018, we issued the 2023 Convertible Notes in an aggregate principal amount of $ 316.3 million . The 2023 Convertible Notes bear interest at a fixed rate of 2.0 % per year, payable semiannually in arrears on February 15th and August 15th of each year and will mature on August 15, 2023, unless earlier converted or repurchased. The 2023 Convertible Notes are senior unsecured obligations of the Company.

The 2023 Convertible Notes are convertible at a conversion rate of 9.8643 shares of our common stock per $1,000 principal amount of the 2023 Convertible Notes (equivalent to a conversion price of approximately $ 101.38 per share of common stock). Subject to the conditions set forth in the indenture governing the 2023 Convertible Notes, holders may convert their 2023 Convertible Notes at any time prior to the close of business on the business day immediately preceding May 15, 2023. The circumstances required to allow the holders to convert their 2023 Convertible Notes prior to maturity were not met as of March 31, 2020 .

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 March 31,
	2020		2019
Contractual interest expense	$	1,581	$	1,581
Amortization of debt discount ⁽¹⁾	2,225		2,108
Total	$	3,806	$	3,689


⁽¹⁾	The effective interest rate of the liability component was 5.45 % as of March 31, 2020 .

Credit Facility

On June 26, 2015, we entered into a credit agreement (the "Original Credit Agreement"), which provides for a $ 550.0 million senior secured bank revolving credit facility (the “Credit Facility”) maturing on June 26, 2020. In November 2018, we amended and restated the Original Credit Agreement, to, among other things, extend the maturity of the revolving loans under the Credit Facility to November 30, 2023 and incurred an additional $ 1.7 million of debt issuance costs (the Original Credit Agreement as amended and restated, the “Credit Agreement”).

The Company classified the borrowings under the Company’s Credit Facility as long-term debt in the accompanying Condensed Consolidated Balance Sheets, as amounts due under the Credit 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 (and, therefore, unavailable) as of March 31, 2020 for letters of credit.

There were $ 1.6 million and $ 2.0 million of unamortized debt issue costs related to the Credit Facility as of March 31, 2020 and December 31, 2019 , 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 and are expensed on a straight-line basis. Most leases include one or more options to renew, with renewal terms that can extend the lease term from six months to seven years . The exercise of lease renewal options is at our sole discretion. Certain of our lease agreements include rental payments that are adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The table below summarizes the carrying amount of our operating lease assets and liabilities:



Leases	Classification	As of March 31, 2020		As of December 31, 2019
Assets
Operating lease assets	Operating lease assets	$	149,570	$	159,777
Total lease assets		$	149,570	$	159,777
Liabilities
Current
Operating lease liabilities	Accounts payable, accrued expenses and other	$	36,235	$	35,727
Noncurrent
Operating lease liabilities	Noncurrent operating lease liabilities	163,594		176,378
Total lease liabilities		$	199,829	$	212,105

The table below summarizes total lease costs:



	Three months ended March 31,
Lease Cost	2020			2019
Operating lease costs	$	11,900		$	10,865
Short-term lease costs	522			863
Variable lease costs	2,987			3,013
Sublease income	( 1,090		)	( 1,197		)
Total lease cost	$	14,319		$	13,544

We sublease certain of our leased office spaces to third parties. Our sublease portfolio consists of leases of office space that we have vacated before the lease term expiration. Operating lease expense on vacated office space is reduced by sublease rental income, which is recorded to SG&A expenses on the Condensed Consolidated Statements of Comprehensive Income. Our sublease arrangements do not contain renewal options or restrictive covenants. We estimate future sublease rental income to be $ 3.6 million for the remainder of 2020, $ 4.5 million in 2021, $ 0.7 million in 2022, $ 0.6 million in 2023, $ 0.6 million in 2024 and $ 0.3 million in years beyond 2024.

The maturity analysis below summarizes the remaining future undiscounted cash flows for our operating leases and includes a reconciliation to operating lease liabilities reported on the Condensed Consolidated Balance Sheet:



	As of March 31, 2020
2020 (remaining)	$	32,688
2021	50,784
2022	31,886
2023	26,654
2024	23,518
Thereafter	75,776
Total future lease payments	241,306
Less: imputed interest	( 41,477		)
Total	$	199,829