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Navigant Misses on Q2 Adjusted Earnings, Shares Dip Slightly

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Navigant Consulting Inc.’s (NCI - Free Report) adjusted earnings (excluding non-recurring items) came in at 22 cents per share in second-quarter 2014, versus 31 cents in the year-ago quarter. The adjusted earnings for the reported quarter missed the Zacks Consensus Estimate by 3 cents.



The company posted second-quarter 2014 net loss of $75.9 million or a loss of $1.55 per share compared to net income of $14.0 million or 27 cents per share in the year-ago quarter. The year-over-year decline in earnings was primarily attributable to a non-cash goodwill impairment charge of $122.0 million in order to reduce the carrying value of goodwill related to the Disputes, Investigations & Economics segment.

Total revenue was down 0.7% year over year to $208.1 million, while revenues before reimbursements (RBR) decreased 0.3% to $186.5 million in the reported quarter. The decrease in second-quarter 2014 revenues was largely driven by lower RBR in the Financial, Risk & Compliance segment, partially offset by higher RBR in the Healthcare segment. Total reported revenue, however, exceeded the Zacks Consensus Estimate of $201 million.

Adjusted EBITDA for second-quarter 2014 was $27.4 million compared with $34.5 million in the year-ago quarter. With year-over-year decreases in almost all the financial metrics, share prices declined almost 1% since the earnings release to close at $16.64 yesterday.

Segment Performance

The Healthcare segment's RBR increased 16.3% year over year to $54.4 million due to the accretive acquisition of Cymetrix and higher contribution from revenue cycle management services. Operating profit for the segment, however, was down 14.5% year over year to $15.5 million due to flat organic growth with lesser client engagements owing to cancellations and delays. The Energy segment’s RBR was down 1.0% to $23.6 million due to slower rebound in one service line. The segment operating profit declined 13.2% year over year to $7.0 million due to investments in senior hires during 2014.

Disputes, Investigations & Economics’ RBR remained flat year over year at $76.3 million, reflecting strong demand in the global construction sector and the legal technology solutions area. The segment operating profit was up 3.2% year over year to $26.2 million. Financial, Risk & Compliance Advisory segment registered a 19.7% year-over-year decrease in RBR to $32.2 million owing to reduced contribution from the mortgage servicing review engagements, and a planned reduced contribution from restructuring services in 2014. Operating profit for the segment was down 19.4% year over year to $13.5 million.


During the reported quarter, Navigant acquired Cymetrix Corporation, an Irvine-based revenue cycle management firm specializing in providing outsourcing services to hospital healthcare networks, for $75 million in cash. Cymetrix is expected to add significant depth to Navigant’s subsidiary Alleviant, LLC, which presently provides physician revenue cycle outsourcing services. The new entity, Navigant Healthcare Cymetrix, is well-poised to become a leading provider of end-to-end revenue cycle management services.

The deal is in tune with Navigant’s strategic plans of incorporating data analytics, technology-enabled solutions and operations outsourcing in its business portfolio. The two companies’ adjacent and complementary capabilities will enable them to provide a complete range of solutions to clients, from strategy and advisory services to execution.

With a client base of over 200 hospitals and health networks nationwide, Cymetrix adds new, recurring and more predictable revenue streams to Navigant and thus acts as a catalyst for driving revenue growth. The additional clientele will create new demand for Navigant’s resources, solutions and delivery capabilities.

Balance Sheet and Cash Flow

At quarter end, Navigant had $9.9 million in cash and cash equivalents. Cash from operating activities aggregated $35.2 million compared with $47.5 million in the prior-year period. Free cash flow stood at $17.2 million for second-quarter 2014 versus $24.5 million in the prior-year period largely due to increased capital spending, primarily on technology infrastructure investments.

Debt levels were up to $188.8 million from $128.1 million in the year-earlier period. Leverage (debt divided by trailing twelve month adjusted EBITDA) improved to 1.71 at quarter end from 1.05 as of Jun 30, 2013.

Navigant repurchased 404,508 shares during the reported quarter at an average price of $17.39 per share for $7.0 million. As of Jun 30, 2014, the company had $85.6 million worth of shares remaining under its share repurchase authorization.


For full-year 2014, Navigant maintained its guidance and expects RBR to be in the range of $772 million and $816 million, while total revenue is expected to be in the range of $848 million and $892 million. Adjusted EBITDA is expected to be within $120 million and $130 million. Adjusted earnings per share are expected to be between 94 cents and $1.06.

Navigant currently has a Zacks Rank #4 (Sell). Other stocks that look promising and are worth a look include Huron Consulting Group Inc. (HURN - Free Report) , CRA International Inc. (CRAI - Free Report) and Stantec Inc. (STN - Free Report) , each carrying a Zacks Rank #1 (Strong Buy).

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