false--12-31Q220200000887936100000000.0100000000.0100000000.00.010.017500000075000000373900003671000037390000367100000.00986430us-gaap:AccountsPayableAndAccruedLiabilitiesCurrent00000.010.015000000500000000P24M038000170005800018000
0000887936
2020-01-01
2020-06-30
0000887936
2020-07-23
0000887936
2020-06-30
0000887936
2019-12-31
0000887936
2019-04-01
2019-06-30
0000887936
2019-01-01
2019-06-30
0000887936
2020-04-01
2020-06-30
0000887936
us-gaap:CommonStockMember
2019-04-01
2019-06-30
0000887936
2019-01-01
2019-03-31
0000887936
us-gaap:CommonStockMember
2019-01-01
2019-03-31
0000887936
us-gaap:AdditionalPaidInCapitalMember
2019-01-01
2019-03-31
0000887936
us-gaap:AdditionalPaidInCapitalMember
2018-12-31
0000887936
us-gaap:CommonStockMember
2019-03-31
0000887936
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2019-04-01
2019-06-30
0000887936
us-gaap:AdditionalPaidInCapitalMember
2019-04-01
2019-06-30
0000887936
2019-06-30
0000887936
us-gaap:RetainedEarningsMember
2018-12-31
0000887936
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2018-12-31
0000887936
us-gaap:CommonStockMember
2019-06-30
0000887936
us-gaap:CommonStockMember
2018-12-31
0000887936
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2019-06-30
0000887936
us-gaap:AdditionalPaidInCapitalMember
2019-06-30
0000887936
2018-12-31
0000887936
2019-03-31
0000887936
us-gaap:RetainedEarningsMember
2019-03-31
0000887936
us-gaap:RetainedEarningsMember
2019-06-30
0000887936
us-gaap:RetainedEarningsMember
2019-04-01
2019-06-30
0000887936
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2019-03-31
0000887936
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2019-01-01
2019-03-31
0000887936
us-gaap:AdditionalPaidInCapitalMember
2019-03-31
0000887936
us-gaap:RetainedEarningsMember
2019-01-01
2019-03-31
0000887936
us-gaap:CommonStockMember
2020-01-01
2020-03-31
0000887936
us-gaap:CommonStockMember
2020-03-31
0000887936
us-gaap:AdditionalPaidInCapitalMember
2019-12-31
0000887936
us-gaap:AdditionalPaidInCapitalMember
2020-01-01
2020-03-31
0000887936
us-gaap:AdditionalPaidInCapitalMember
2020-04-01
2020-06-30
0000887936
us-gaap:CommonStockMember
2020-06-30
0000887936
2020-01-01
2020-03-31
0000887936
us-gaap:RetainedEarningsMember
2020-04-01
2020-06-30
0000887936
us-gaap:CommonStockMember
2020-04-01
2020-06-30
0000887936
2020-03-31
0000887936
us-gaap:RetainedEarningsMember
2020-06-30
0000887936
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2020-01-01
2020-03-31
0000887936
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2020-06-30
0000887936
us-gaap:RetainedEarningsMember
2020-03-31
0000887936
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2019-12-31
0000887936
us-gaap:RetainedEarningsMember
2019-12-31
0000887936
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2020-03-31
0000887936
us-gaap:RetainedEarningsMember
2020-01-01
2020-03-31
0000887936
us-gaap:AdditionalPaidInCapitalMember
2020-06-30
0000887936
us-gaap:AdditionalPaidInCapitalMember
2020-03-31
0000887936
us-gaap:CommonStockMember
2019-12-31
0000887936
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2020-04-01
2020-06-30
0000887936
fcn:StockOptionsAndRestrictedSharesMember
2020-01-01
2020-06-30
0000887936
fcn:StockOptionsAndRestrictedSharesMember
2019-01-01
2019-06-30
0000887936
fcn:StockOptionsAndRestrictedSharesMember
2019-04-01
2019-06-30
0000887936
fcn:StockOptionsAndRestrictedSharesMember
2020-04-01
2020-06-30
0000887936
fcn:ConvertibleNoteDue2023Member
us-gaap:SeniorNotesMember
2020-06-30
0000887936
2020-01-01
2019-12-31
0000887936
2020-07-01
2020-06-30
0000887936
us-gaap:TradeNamesMember
2019-12-31
0000887936
us-gaap:CustomerRelationshipsMember
2020-06-30
0000887936
fcn:AcquiredSoftwareMember
2020-06-30
0000887936
us-gaap:TradeNamesMember
2020-06-30
0000887936
us-gaap:CustomerRelationshipsMember
2019-12-31
0000887936
us-gaap:TradeNamesMember
2020-06-30
0000887936
fcn:AcquiredSoftwareMember
2019-12-31
0000887936
us-gaap:TradeNamesMember
2019-12-31
0000887936
fcn:ForensicAndLitigationConsultingMember
2020-01-01
2020-06-30
0000887936
fcn:ForensicAndLitigationConsultingMember
2019-12-31
0000887936
fcn:TechnologyMember
2020-06-30
0000887936
fcn:TechnologyMember
2020-01-01
2020-06-30
0000887936
fcn:StrategicCommunicationsMember
2020-06-30
0000887936
fcn:EconomicConsultingMember
2019-12-31
0000887936
fcn:CorporateFinanceRestructuringMember
2020-06-30
0000887936
fcn:EconomicConsultingMember
2020-06-30
0000887936
fcn:StrategicCommunicationsMember
2019-12-31
0000887936
fcn:CorporateFinanceRestructuringMember
2020-01-01
2020-06-30
0000887936
fcn:ForensicAndLitigationConsultingMember
2020-06-30
0000887936
fcn:TechnologyMember
2019-12-31
0000887936
fcn:StrategicCommunicationsMember
2020-01-01
2020-06-30
0000887936
fcn:EconomicConsultingMember
2020-01-01
2020-06-30
0000887936
fcn:CorporateFinanceRestructuringMember
2019-12-31
0000887936
us-gaap:FairValueInputsLevel2Member
us-gaap:EstimateOfFairValueFairValueDisclosureMember
2020-06-30
0000887936
us-gaap:FairValueInputsLevel3Member
us-gaap:EstimateOfFairValueFairValueDisclosureMember
2020-06-30
0000887936
us-gaap:CarryingReportedAmountFairValueDisclosureMember
2020-06-30
0000887936
us-gaap:FairValueInputsLevel1Member
us-gaap:EstimateOfFairValueFairValueDisclosureMember
2020-06-30
0000887936
us-gaap:MeasurementInputPriceVolatilityMember
fcn:MonteCarloMember
2020-06-30
0000887936
us-gaap:MeasurementInputDiscountRateMember
fcn:ProbabilityWeightedMember
2020-06-30
0000887936
us-gaap:MeasurementInputDiscountRateMember
fcn:MonteCarloMember
2020-06-30
0000887936
us-gaap:FairValueInputsLevel2Member
us-gaap:EstimateOfFairValueFairValueDisclosureMember
2019-12-31
0000887936
us-gaap:FairValueInputsLevel3Member
us-gaap:EstimateOfFairValueFairValueDisclosureMember
2019-12-31
0000887936
us-gaap:CarryingReportedAmountFairValueDisclosureMember
2019-12-31
0000887936
us-gaap:FairValueInputsLevel1Member
us-gaap:EstimateOfFairValueFairValueDisclosureMember
2019-12-31
0000887936
fcn:ConvertibleNoteDue2023Member
us-gaap:SeniorNotesMember
2019-04-01
2019-06-30
0000887936
fcn:ConvertibleNoteDue2023Member
us-gaap:SeniorNotesMember
2020-01-01
2020-06-30
0000887936
fcn:ConvertibleNoteDue2023Member
us-gaap:SeniorNotesMember
2020-04-01
2020-06-30
0000887936
fcn:ConvertibleNoteDue2023Member
us-gaap:SeniorNotesMember
2019-01-01
2019-06-30
0000887936
fcn:CreditFacilityMember
2020-06-30
0000887936
fcn:ConvertibleNoteDue2023Member
2020-06-30
0000887936
fcn:ConvertibleNoteDue2023Member
2019-12-31
0000887936
fcn:CreditFacilityMember
2019-12-31
0000887936
fcn:ConvertibleNoteDue2023Member
us-gaap:SeniorNotesMember
2018-08-20
0000887936
fcn:CreditFacilityMember
us-gaap:LineOfCreditMember
2018-11-30
0000887936
fcn:CreditFacilityMember
us-gaap:LineOfCreditMember
2019-12-31
0000887936
fcn:CreditFacilityMember
us-gaap:LineOfCreditMember
2015-06-26
0000887936
us-gaap:LineOfCreditMember
2020-06-30
0000887936
fcn:CreditFacilityMember
us-gaap:LineOfCreditMember
2020-06-30
0000887936
fcn:ConvertibleNoteDue2023Member
us-gaap:SeniorNotesMember
2018-08-20
2018-08-20
0000887936
srt:MaximumMember
2020-06-30
0000887936
srt:MinimumMember
2020-06-30
0000887936
us-gaap:CostOfSalesMember
2020-01-01
2020-06-30
0000887936
us-gaap:CostOfSalesMember
2020-04-01
2020-06-30
0000887936
us-gaap:CostOfSalesMember
2019-04-01
2019-06-30
0000887936
us-gaap:SellingGeneralAndAdministrativeExpensesMember
2020-01-01
2020-06-30
0000887936
us-gaap:SellingGeneralAndAdministrativeExpensesMember
2019-01-01
2019-06-30
0000887936
us-gaap:SellingGeneralAndAdministrativeExpensesMember
2020-04-01
2020-06-30
0000887936
us-gaap:SellingGeneralAndAdministrativeExpensesMember
2019-04-01
2019-06-30
0000887936
us-gaap:CostOfSalesMember
2019-01-01
2019-06-30
0000887936
srt:MaximumMember
us-gaap:PerformanceSharesMember
2020-01-01
2020-06-30
0000887936
srt:MaximumMember
2020-01-01
2020-06-30
0000887936
us-gaap:PerformanceSharesMember
2020-01-01
2020-06-30
0000887936
srt:MaximumMember
us-gaap:RestrictedStockUnitsRSUMember
2020-01-01
2020-06-30
0000887936
srt:MaximumMember
us-gaap:RestrictedStockMember
2020-01-01
2020-06-30
0000887936
fcn:TwoThousandSixteenStockRepurchaseProgramMember
2020-02-20
0000887936
fcn:TwoThousandSixteenStockRepurchaseProgramMember
2020-06-30
0000887936
fcn:TwoThousandSixteenStockRepurchaseProgramMember
2016-06-02
0000887936
fcn:TwoThousandSixteenStockRepurchaseProgramMember
2019-04-01
2019-06-30
0000887936
fcn:TwoThousandSixteenStockRepurchaseProgramMember
2019-01-01
2019-06-30
0000887936
fcn:TwoThousandSixteenStockRepurchaseProgramMember
2020-04-01
2020-06-30
0000887936
fcn:TwoThousandSixteenStockRepurchaseProgramMember
2020-01-01
2020-06-30
0000887936
fcn:TwoThousandSixteenStockRepurchaseProgramMember
2019-02-21
0000887936
fcn:TwoThousandSixteenStockRepurchaseProgramMember
2017-05-18
0000887936
fcn:TwoThousandSixteenStockRepurchaseProgramMember
2017-12-01
0000887936
fcn:CorporateFinanceRestructuringMember
2020-04-01
2020-06-30
0000887936
fcn:EconomicConsultingMember
2019-01-01
2019-06-30
0000887936
fcn:ForensicAndLitigationConsultingMember
2019-01-01
2019-06-30
0000887936
fcn:ForensicAndLitigationConsultingMember
2020-04-01
2020-06-30
0000887936
fcn:StrategicCommunicationsMember
2019-01-01
2019-06-30
0000887936
fcn:EconomicConsultingMember
2019-04-01
2019-06-30
0000887936
fcn:EconomicConsultingMember
2020-04-01
2020-06-30
0000887936
fcn:TechnologyMember
2019-04-01
2019-06-30
0000887936
fcn:TechnologyMember
2019-01-01
2019-06-30
0000887936
fcn:CorporateFinanceRestructuringMember
2019-01-01
2019-06-30
0000887936
fcn:TechnologyMember
2020-04-01
2020-06-30
0000887936
fcn:ForensicAndLitigationConsultingMember
2019-04-01
2019-06-30
0000887936
fcn:CorporateFinanceRestructuringMember
2019-04-01
2019-06-30
0000887936
fcn:StrategicCommunicationsMember
2020-04-01
2020-06-30
0000887936
fcn:StrategicCommunicationsMember
2019-04-01
2019-06-30
xbrli:pure
iso4217:USD
xbrli:shares
iso4217:USD
xbrli:shares
fcn:segment
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, 2020
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 23, 2020 |
Common Stock, $0.01 par value | 36,594,842 |
FTI CONSULTING, INC. AND SUBSIDIARIES
INDEX
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, |
| 2020 | | 2019 |
| (Unaudited) | | |
Assets | | | |
Current assets | |
| | |
|
Cash and cash equivalents | $ | 304,206 |
| | $ | 369,373 |
|
Accounts receivable: | | | |
Billed receivables | 578,722 |
| | 540,584 |
|
Unbilled receivables | 435,234 |
| | 418,288 |
|
Allowance for doubtful accounts and unbilled services | (299,038 | ) | | (265,500 | ) |
Accounts receivable, net | 714,918 |
| | 693,372 |
|
Current portion of notes receivable | 32,279 |
| | 35,106 |
|
Prepaid expenses and other current assets | 75,938 |
| | 80,810 |
|
Total current assets | 1,127,341 |
| | 1,178,661 |
|
Property and equipment, net | 91,753 |
| | 93,672 |
|
Operating lease assets | 152,245 |
| | 159,777 |
|
Goodwill | 1,196,162 |
| | 1,202,767 |
|
Other intangible assets, net | 33,588 |
| | 38,432 |
|
Notes receivable, net | 64,646 |
| | 69,033 |
|
Other assets | 39,172 |
| | 40,800 |
|
Total assets | $ | 2,704,907 |
| | $ | 2,783,142 |
|
Liabilities and Stockholders' Equity | | | |
Current liabilities | | | |
Accounts payable, accrued expenses and other | $ | 163,162 |
| | $ | 158,936 |
|
Accrued compensation | 314,018 |
| | 416,903 |
|
Billings in excess of services provided | 40,288 |
| | 36,698 |
|
Total current liabilities | 517,468 |
| | 612,537 |
|
Long-term debt, net | 315,808 |
| | 275,609 |
|
Noncurrent operating lease liabilities | 161,753 |
| | 176,378 |
|
Deferred income taxes | 155,293 |
| | 151,352 |
|
Other liabilities | 75,482 |
| | 78,124 |
|
Total liabilities | 1,225,804 |
| | 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 — 36,710 (2020) and 37,390 (2019) | 367 |
| | 374 |
|
Additional paid-in capital | 122,743 |
| | 216,162 |
|
Retained earnings | 1,518,374 |
| | 1,413,453 |
|
Accumulated other comprehensive loss | (162,381 | ) | | (140,847 | ) |
Total stockholders' equity | 1,479,103 |
| | 1,489,142 |
|
Total liabilities and stockholders' equity | $ | 2,704,907 |
| | $ | 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 June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Revenues | $ | 607,852 |
| | $ | 606,119 |
| | $ | 1,212,445 |
| | $ | 1,157,393 |
|
Operating expenses | | | | | | | |
Direct cost of revenues | 413,011 |
| | 386,266 |
| | 815,258 |
| | 735,332 |
|
Selling, general and administrative expenses | 126,928 |
| | 129,906 |
| | 253,887 |
| | 243,091 |
|
Amortization of other intangible assets | 2,314 |
| | 1,852 |
| | 4,645 |
| | 3,713 |
|
| 542,253 |
| | 518,024 |
| | 1,073,790 |
| | 982,136 |
|
Operating income | 65,599 |
| | 88,095 |
| | 138,655 |
| | 175,257 |
|
Other income (expense) | |
| | |
| | |
| | |
|
Interest income and other | 2,202 |
| | 2,609 |
| | 7,219 |
| | 2,768 |
|
Interest expense | (5,157 | ) | | (4,793 | ) | | (10,018 | ) | | (9,539 | ) |
| (2,955 | ) | | (2,184 | ) | | (2,799 | ) | | (6,771 | ) |
Income before income tax provision | 62,644 |
| | 85,911 |
| | 135,856 |
| | 168,486 |
|
Income tax provision | 14,470 |
| | 21,313 |
| | 30,935 |
| | 41,243 |
|
Net income | $ | 48,174 |
| | $ | 64,598 |
| | $ | 104,921 |
| | $ | 127,243 |
|
Earnings per common share — basic | $ | 1.33 |
| | $ | 1.75 |
| | $ | 2.89 |
| | $ | 3.44 |
|
Earnings per common share — diluted | $ | 1.27 |
| | $ | 1.69 |
| | $ | 2.76 |
| | $ | 3.33 |
|
Other comprehensive income (loss), net of tax | | | | | | | |
Foreign currency translation adjustments, net of tax expense of $0 | $ | 9,568 |
| | $ | (4,815 | ) | | $ | (21,534 | ) | | $ | 408 |
|
Total other comprehensive income (loss), net of tax | 9,568 |
| | (4,815 | ) | | (21,534 | ) | | 408 |
|
Comprehensive income | $ | 57,742 |
| | $ | 59,783 |
| | $ | 83,387 |
| | $ | 127,651 |
|
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 | | | | | 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 |
|
Net income | — |
| | $ | — |
| | $ | — |
| | $ | 48,174 |
| | $ | — |
| | $ | 48,174 |
|
Other comprehensive income: | | | | | | | | | | | |
Cumulative translation adjustment | — |
| | — |
| | — |
| | — |
| | 9,568 |
| | 9,568 |
|
Issuance of common stock in connection with: | | | | | | | | | | | |
Exercise of options | 33 |
| | — |
| | 1,191 |
| | — |
| | — |
| | 1,191 |
|
Restricted share grants, less net settled shares of 18 | 38 |
| | 1 |
| | (2,155 | ) | | — |
| | — |
| | (2,154 | ) |
Purchase and retirement of common stock | (471 | ) | | (5 | ) | | (51,048 | ) | | — |
| | — |
| | (51,053 | ) |
Share-based compensation | — |
| | — |
| | 4,693 |
| | — |
| | — |
| | 4,693 |
|
Balance at June 30, 2020 | 36,710 |
| | $ | 367 |
| | $ | 122,743 |
| | $ | 1,518,374 |
| | $ | (162,381 | ) | | $ | 1,479,103 |
|
|
| | | | | | | | | | | | | | | | | | | | | | |
| 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 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 |
|
See accompanying notes to condensed consolidated financial statements
FTI Consulting, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
|
| | | | | | | |
| Six Months Ended June 30, |
| 2020 | | 2019 |
Operating activities | | | |
Net income | $ | 104,921 |
| | $ | 127,243 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | |
Depreciation and amortization | 15,707 |
| | 14,304 |
|
Amortization and impairment of other intangible assets | 4,645 |
| | 3,713 |
|
Acquisition-related contingent consideration | 1,120 |
| | 186 |
|
Provision for doubtful accounts | 11,624 |
| | 6,260 |
|
Share-based compensation | 12,147 |
| | 10,207 |
|
Amortization of debt discount and issuance costs | 5,987 |
| | 5,748 |
|
Deferred income taxes | 4,128 |
| | 966 |
|
Other | 13 |
| | 225 |
|
Changes in operating assets and liabilities, net of effects from acquisitions: | | | |
Accounts receivable, billed and unbilled | (42,804 | ) | | (186,854 | ) |
Notes receivable | 5,993 |
| | 8,343 |
|
Prepaid expenses and other assets | 8,979 |
| | (1,953 | ) |
Accounts payable, accrued expenses and other | 2,230 |
| | (11,606 | ) |
Income taxes | (2,344 | ) | | 23,458 |
|
Accrued compensation | (107,217 | ) | | (55,183 | ) |
Billings in excess of services provided | 4,285 |
| | 505 |
|
Net cash provided by (used in) operating activities | 29,414 |
| | (54,438 | ) |
Investing activities | | | |
Purchases of property and equipment | (13,899 | ) | | (20,661 | ) |
Other | 14 |
| | 69 |
|
Net cash used in investing activities | (13,885 | ) | | (20,592 | ) |
Financing activities | | | |
Borrowings under revolving line of credit | 90,000 |
| | 25,000 |
|
Repayments under revolving line of credit | (55,000 | ) | | (5,000 | ) |
Purchase and retirement of common stock | (99,678 | ) | | (66,893 | ) |
Net issuance of common stock under equity compensation plans | (6,523 | ) | | 1,009 |
|
Payments for business acquisition liabilities | (3,948 | ) | | (2,282 | ) |
Deposits and other | 5,098 |
| | 1,014 |
|
Net cash used in financing activities | (70,051 | ) | | (47,152 | ) |
Effect of exchange rate changes on cash and cash equivalents | (10,645 | ) | | (781 | ) |
Net decrease in cash and cash equivalents | (65,167 | ) | | (122,963 | ) |
Cash and cash equivalents, beginning of period | 369,373 |
| | 312,069 |
|
Cash and cash equivalents, end of period | $ | 304,206 |
| | $ | 189,106 |
|
Supplemental cash flow disclosures | | | |
Cash paid for interest | $ | 3,668 |
| | $ | 3,467 |
|
Cash paid for income taxes, net of refunds | $ | 29,150 |
| | $ | 16,820 |
|
Non-cash investing and financing activities: | | | |
Issuance of stock units under incentive compensation plans | $ | 2,314 |
| | $ | 1,346 |
|
Purchase and retirement of common stock not yet paid | $ | 1,829 |
| | $ | 3,322 |
|
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 resulted 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. The impact was not material on the Condensed Consolidated Balance Sheets as of June 30, 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 and six months ended June 30, 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 (restricted share awards, restricted stock units and performance stock units), 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 and six months ended June 30, 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 June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Numerator — basic and diluted | | | | | | | |
Net income | $ | 48,174 |
| | $ | 64,598 |
| | $ | 104,921 |
| | $ | 127,243 |
|
Denominator | | | | | | | |
Weighted average number of common shares outstanding — basic | 36,169 |
| | 36,960 |
| | 36,292 |
| | 36,970 |
|
Effect of dilutive convertible notes | 507 |
| | — |
| | 470 |
| | — |
|
Effect of dilutive stock options | 444 |
| | 459 |
| | 453 |
| | 445 |
|
Effect of dilutive restricted shares | 732 |
| | 749 |
| | 806 |
| | 778 |
|
Weighted average number of common shares outstanding — diluted | 37,852 |
| | 38,168 |
| | 38,021 |
| | 38,193 |
|
Earnings per common share — basic | $ | 1.33 |
| | $ | 1.75 |
| | $ | 2.89 |
| | $ | 3.44 |
|
Earnings per common share — diluted | $ | 1.27 |
| | $ | 1.69 |
| | $ | 2.76 |
| | $ | 3.33 |
|
Antidilutive stock options and restricted shares | 54 |
| | 25 |
| | 33 |
| | 38 |
|
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 $14.1 million for the three and six months ended June 30, 2020, respectively, and $21.2 million and $23.7 million for the three and six months ended June 30, 2019, respectively.
Unfulfilled performance obligations primarily consist of fees not yet recognized on certain fixed-fee arrangements and performance-based and contingent arrangements. As of June 30, 2020 and December 31, 2019, the aggregate amount of unfulfilled performance obligations was $1.7 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 June 30, 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 fees before work begins. The contract liability balance was immaterial as of June 30, 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 accounts receivable. The allowance for doubtful accounts and unbilled services is also adjusted after the related work has been billed to the client and we determine that all or a portion of the accounts receivable is not expected to be collected.
Adjustments to the allowance for doubtful accounts and unbilled services related to expected credit losses are recorded to selling, general and administrative ("SG&A") expenses on the Condensed Consolidated Statements of Comprehensive Income as bad debt expense. Judgment is required to assess collectability and to adjust the allowance for doubtful accounts and unbilled services to the current estimate of expected credit losses. Our judgments consider customer specific risks such as the counterparty’s creditworthiness and historical collection experience. Other factors include but are not limited to current economic conditions and forward-looking estimates.
Our bad debt expense totaled $7.8 million and $11.6 million for the three and six months ended June 30, 2020, respectively, and $2.5 million and $6.3 million for the three and six months ended June 30, 2019, respectively. Our billed accounts receivables are written off when the potential for recovery is considered remote. Our write-offs totaled $7.5 million and $13.5 million for the three and six months ended June 30, 2020, respectively, and $3.4 million and $5.9 million for the three and six months ended June 30, 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 | (285 | ) | | (1,879 | ) | | (322 | ) | | (88 | ) | | (4,031 | ) | | (6,605 | ) |
Balance at June 30, 2020 | | | | | | | | | | | |
Goodwill | 478,557 |
|
| 230,241 |
|
| 268,355 |
|
| 96,682 |
| | 316,466 |
| | 1,390,301 |
|
Accumulated goodwill impairment | — |
| | — |
| | — |
| | — |
| | (194,139 | ) | | (194,139 | ) |
Goodwill, net at June 30, 2020 | $ | 478,557 |
|
| $ | 230,241 |
|
| $ | 268,355 |
|
| $ | 96,682 |
|
| $ | 122,327 |
|
| $ | 1,196,162 |
|
Other Intangible Assets
Other intangible assets were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 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 | | $ | 97,849 |
| | $ | 78,935 |
| | $ | 18,914 |
| | $ | 99,613 |
| | $ | 76,808 |
| | $ | 22,805 |
|
Trademarks | | 9,898 |
| | 1,481 |
| | 8,417 |
| | 9,855 |
| | 653 |
| | 9,202 |
|
Acquired software and other | | 3,401 |
| | 2,244 |
| | 1,157 |
| | 3,386 |
| | 2,061 |
| | 1,325 |
|
| | 111,148 |
| | 82,660 |
| | 28,488 |
| | 112,854 |
| | 79,522 |
| | 33,332 |
|
Non-amortizing intangible assets | | | | | | | | | | | | |
Trademarks | | 5,100 |
| | — |
| | 5,100 |
| | 5,100 |
| | — |
| | 5,100 |
|
Total | | $ | 116,248 |
| | $ | 82,660 |
| | $ | 33,588 |
| | $ | 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 $4.6 million for the three and six months ended June 30, 2020, respectively, and $1.9 million and $3.7 million for the three and six months ended June 30, 2019, respectively.
We estimate our future amortization expense for our intangible assets with finite lives to be as follows:
|
| | | |
Year | As of June 30, 2020 (1) |
2020 (remaining) | $ | 4,650 |
|
2021 | 8,792 |
|
2022 | 7,002 |
|
2023 | 3,607 |
|
2024 | 2,204 |
|
Thereafter | 2,233 |
|
| $ | 28,488 |
|
| |
(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 June 30, 2020 and December 31, 2019:
|
| | | | | | | | | | | | | | | |
| June 30, 2020 |
| | | Hierarchy Level (Fair Value) |
| Carrying Amount | | Level 1 | | Level 2 | | Level 3 |
Liabilities | | | | | | | |
Acquisition-related contingent consideration, including current portion (1) | $ | 11,194 |
| | $ | — |
| | $ | — |
| | $ | 11,194 |
|
2023 Convertible Notes (2) | 280,808 |
| | — |
| | 399,689 |
| |
|
Total | $ | 292,002 |
| | $ | — |
| | $ | 399,689 |
| | $ | 11,194 |
|
|
| | | | | | | | | | | | | | | |
| 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 June 30, 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 (or decreases) in these unobservable inputs in isolation would result in significantly lower (or higher) fair values. 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 expense (1) | 506 |
|
Foreign currency translation adjustment (2) | (148 | ) |
Balance at March 31, 2020 | $ | 15,184 |
|
Accretion expense (1) | 614 |
|
Payments | (4,692 | ) |
Foreign currency translation adjustment (2) | 88 |
|
Balance at June 30, 2020 | $ | 11,194 |
|
|
| | | |
| Liability for Acquisition-Related Contingent Consideration |
Balance at December 31, 2018 | $ | 3,698 |
|
Accretion expense (1) | 93 |
|
Balance at March 31, 2019 | $ | 3,791 |
|
Accretion expense (1) | 93 |
|
Payments | (1,000 | ) |
Balance at June 30, 2019 | $ | 2,884 |
|
| |
(1) | Accretion expense 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:
|
| | | | | | | |
| June 30, 2020 | | December 31, 2019 |
2023 Convertible Notes | $ | 316,250 |
| | $ | 316,250 |
|
Credit Facility | 35,000 |
| | — |
|
Total debt | 351,250 |
| | 316,250 |
|
Less: deferred debt discount | (30,912 | ) | | (35,393 | ) |
Less: deferred debt issue costs | (4,530 | ) | | (5,248 | ) |
Long-term debt, net (1) | $ | 315,808 |
| | $ | 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 June 30, 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 maturity 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 June 30, 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 June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Contractual interest expense | $ | 1,581 |
| | $ | 1,581 |
| | $ | 3,162 |
| | $ | 3,162 |
|
Amortization of debt discount (1) | 2,255 |
| | 2,137 |
| | 4,480 |
| | 4,245 |
|
Total | $ | 3,836 |
| | $ | 3,718 |
| | $ | 7,642 |
| | $ | 7,407 |
|
| |
(1) | The effective interest rate of the liability component is 5.45%. |
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 Facility 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 June 30, 2020 for letters of credit.
There were $1.2 million and $2.0 million of unamortized debt issue costs related to the Credit Facility as of June 30, 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, which may include renewal or termination options that are reasonably certain of exercise. 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 three 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 June 30, 2020 | | As of December 31, 2019 |
Assets | | | | | | |
Operating lease assets | | Operating lease assets | | $ | 152,245 |
| | $ | 159,777 |
|
Total lease assets | | | | $ | 152,245 |
| | $ | 159,777 |
|
Liabilities | | | | | | |
Current | | | | | | |
Operating lease liabilities | | Accounts payable, accrued expenses and other | | $ | 39,595 |
| | $ | 35,727 |
|
Noncurrent | | | | | | |
Operating lease liabilities | | Noncurrent operating lease liabilities | | 161,753 |
| | 176,378 |
|
Total lease liabilities | | | | $ | 201,348 |
| | $ | 212,105 |
|
The table below summarizes total lease costs:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
Lease Cost | 2020 | | 2019 | | 2020 | | 2019 |
Operating lease costs | $ | 11,800 |
| | $ | 11,044 |
| | $ | 23,599 |
| | $ | 21,909 |
|
Short-term lease costs | 487 |
| | 566 |
| | 1,009 |
| | 1,429 |
|
Variable lease costs | 2,846 |
| | 2,685 |
| | 5,832 |
| | 5,698 |
|
Sublease income | (1,041 | ) | | (1,246 | ) | | (2,130 | ) | | (2,443 | ) |
Total lease cost, net | $ | 14,092 |
| | $ | 13,049 |
| | $ | 28,310 |
| | $ | 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 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 $2.4 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 June 30, 2020 |
2020 (remaining) | $ | 21,376 |
|
2021 | 53,585 |
|
2022 | 34,287 |
|
2023 | 28,507 |
|
2024 | 25,239 |
|
Thereafter | 79,045 |
|
Total future lease payments | 242,039 |
|
Less: imputed interest | (40,691 | ) |
Total | $ | 201,348 |
|
The table below includes cash paid for our operating lease liabilities, other non-cash information, our weighted average remaining lease term and weighted average discount rate:
|
| | | | | | | |
| Six Months Ended June 30, |
| 2020 | | 2019 |
Cash paid for amounts included in the measurement of operating lease liabilities | $ | 26,986 |
| | $ | 23,199 |
|
| | | |
Operating lease assets obtained in exchange for lease liabilities | $ | 11,954 |
| | $ | 19,162 |
|
| | | |
Weighted average remaining lease term (years) | | | |
Operating leases | 6.3 |
| | 6.7 |
|
| | | |
Weighted average discount rate | | | |
Operating leases | 5.5 | % | | 5.6 | % |
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.
11. Share-Based Compensation
During the six months ended June 30, 2020, we granted 128,366 restricted share awards, 28,927 restricted stock units and 108,718 performance stock units. Our performance stock units are presented at the maximum potential payout percentage of 150% of target shares granted. These awards are recorded as equity on the Condensed Consolidated Balance Sheets. During the six months ended June 30, 2020, no stock options or 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, 2020 and 2019 is detailed in the following table:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
Income Statement Classification | 2020 | | 2019 | | 2020 | | 2019 |
Direct cost of revenues | $ |
|