Navigant Consulting (NCI)

Transcription

1 UNIVERSITY OF OREGON INVESTMENT GROUP Financials Navigant Consulting (NCI) Stock Data Price (52 weeks) Symbol/Exchange NCI/NYSE Beta.81 Shares Outstanding M Average daily volume 376,998 (3 month average) Current market cap BUY Current Price Dividend Dividend Yield $10.19 N/A N/A Valuation (per share) DCF Analysis (60%) Comparables Analysis (40%) Target Price Current Price Summary Financials 2009A Revenue M Net Income 21.95M Operating Cash Flow 62.54M BUSINESS OVERVIEW Navigant Consulting was founded in 1983 and is based in Chicago, IL. They became publicly traded in 1996 on the NYSE. They have offices located throughout the United States with a strong presence in many of the major metropolitan areas, including Los Angeles, New York, San Francisco, Chicago, Washington D.C., as well as many others. They also operate offices outside of the US in Canada, the United Kingdom, and China. In total Navigant operates in 40 cities around the world. Covering Analyst: Travis A. Ostergard ostergar@uoregon.edu The University of Oregon Investment Group (UOIG) is a student run organization whose purpose is strictly educational. Member students are not certified or licensed to give investment advice or analyze securities, nor do they purport to be. Members of UOIG may have clerked, interned or held various employment positions with firms held in UOIG s portfolio. In addition, members of UOIG may attempt to obtain employment positions with firms held in UOIG s portfolio.

2 Navigant is a specialty consulting firm, focusing on a few major industries including healthcare, energy, financial services, insurance, and construction. They provide an array of services to companies within these industries to address uncertainty, distress, risk, and significant change. Navigant Consulting operates in four segments: Dispute and Investigative, Business Consulting, International Consulting, and Economic Consulting. Operating Segments Dispute and Investigative Consulting 40.63% of Revenues The Dispute and Investigative Consulting segment provides services to its clients in the areas of disputes, litigation, forensic investigation, discovery, and compliance. Their clients include law firms and corporations. The Corporate Finance and Restructuring division handles clients strategic, operational, financial and capital needs. Some specific issues this segment commonly deals with include bankruptcy, corporate turnarounds, performance improvement, and financial and operational restructuring advisory. They also work in financing, structuring, and advising mergers and acquisitions. Also, providing lending solutions, interim management, and transaction advisory are some other services that this segment offers. Much of the revenue for the corporate finance/restructuring segment is generated from counter-cyclical services such as bankruptcy, restructuring, financing, and performance improvement. Some of the drivers of demand for this segment include mergers and acquisitions, economic conditions, and the availability of credit in the market. The strong revenue growth this segment has experienced the past two years has disappeared as demand for the counter-cyclical services has declined. Business Consulting 41.23% of Revenues The Business Consulting segment provides strategic, operational, financial, regulatory and technical management consulting services to their clients. Their clients include corporate management, government entities and law firms. The segment is comprised of three operating segments: Energy, Healthcare and Other Business Consulting practices. The Energy and Healthcare business units are defined as operating segments due to their size, importance and organizational reporting relationships. The Energy and Healthcare operating segments provide services to clients in those respective markets and Other Business Consulting practice provides operations advisory, valuation and restructuring services to financial services and other markets. International Consulting 10.3% of Revenues The International Consulting segment provides all the services that the Dispute and Investigative and Business Consulting segments offer to their clients, but to all of Navigant s clients outside of the United States. They work with clients in the United Kingdom, China, and Canada. These clients include law firms, corporate management, and government entities. Economic Consulting 7.84% of Revenues The Economic Consulting segment provides economic and financial analyses of complex legal and business issues. They provide these services primarily to law firms, corporations and government agencies. Expertise includes areas such as antitrust, corporate finance and governance, bankruptcy, intellectual property, investment banking, labor market discrimination and compensation, corporate valuation and securities litigation. BUSINESS AND GROWTH STRATEGIES Navigant s growth can be attributed to both organic growth and growth by acquisitions. They use acquisitions to strengthen their presence in certain industries and also to strengthen their positions in dense geographic markets. 2

3 Three acquisitions were made during 2010, and management is projecting a light year for acquisitions during 2011 after spending nearly $100M on acquisitions and capital expenditures during Management has focused their recent acquisitions on strengthening their current operating segments rather than expanding their services into other segments. As the industry s margins as a whole were hit hard during the recession, Navigant has spent the last few years focusing on increasing their efficiency through greater organizational focus. For this reason I project that they will use 2011 to assess the changes that they have made. Going forward I project that Navigant will again use acquisitions to increase their service offerings, as they did in 2008, acquiring Chicago Partners as a way to enter the Economic Consulting segment. After 2011 I expect the company to begin targeting their acquisitions to companies that will expand Navigant s service offerings. One focus of the company recently has been to consolidate their office locations, as many of their acquisitions had resulted in overlap of operations throughout some of the major cities that they operate in. During 2009 and 2010 Navigant reduced the number of leases they held in these markets, consolidating their operations into fewer locations and reducing their capital expenditures in the long run and their SG&A in the short run. They do still spend on capital expenditures, with the majority of this spending going towards leasehold improvements and office furniture and equipment, which has zero effect on top line revenue growth. I project capital expenditures to stay relatively even going forward, with them trending up slightly as their current focus on efficiency wears off and they lose focus on reducing costs. While the majority of the growth that Navigant has realized in previous years can be attributed to acquisitions, they have also been growing organically. They expect strong growth in their Economic Consulting segment, a segment that they entered with their acquisition of Chicago Partners in This is a small percent of their total revenues with a lot of room for organic growth. Navigant expects a decline in growth in their International Consulting segment for 2010 Q4 and for They have cited a decrease in demand for their International services, and they have lacked focus on this segment because of their recent focus on consolidation and efficiency. Going forward this segment will be an area of growth for the industry as a whole, and Navigant is in a great position to capitalize on this opportunity with strategically located offices worldwide. With their other two segments, Dispute and Investigative and their Business Consulting segments, Navigant has focused more on growing their revenues by acquisition rather than organically. MANAGEMENT AND EMPLOYEE RELATIONS The current CEO of Navigant Consulting, William Goodyear, joined the company in Prior to that Mr. Goodyear served as CEO of Bank of America, Illinois and was President of Bank of America s Global Private Bank before that. Since joining the company, Navigant has grown from $245 million in annual revenues to over $700 million, expanded overseas, and increased their presence in domestic markets. He was awarded a salary of $850,000 in for RECENT NEWS October 28, 2010 Navigant Consulting misses Q3 earnings estimates by 6 cents, reporting earnings per share of 16 cents compared to Wall Street expectations of 22 cents. On the day the miss was reported, their share price fell over 20% 3

4 October 4, 2010 Navigant Consulting acquires Ethos Partners Healthcare Group in a $37M cash and stock deal. Ethos Partners is a specialty consulting firm, focusing on helping doctors and hospitals handle operations and revenue cycle management. Their operations will be integrated into Navigant s Business Consulting segment and will give the company a stronger presence in the healthcare consulting segment. INDUSTRY Navigant Consulting operates in the Management Consulting Industry. Management Consultants provide assistance to organizations on issues that include strategic and organizational planning, financial planning, marketing, human resources policies, production scheduling and control planning. Some major services that this industry offers include Corporate Strategy, Financial Advisory, Human Resources, IT Strategy, Marketing and sales, Organizational Design, and Process and Operations management. This industry does not have a concentration of power, as no firm has over 5% market share. The industry is in a stage of consolidation, though, as the recession caused many smaller firms to shut down and others to be acquired. Even some of the firms that were able to make it through the recession will be acquired by one of the larger firms, consolidating the industry more, but still leaving the industry without any market leader. Some of Navigant s main competitors are privately held, making comparisons within the industry difficult. Some of the larger players within the industry are Accenture, Bain & Company, Boston Consulting Group, McKinsey & Company, Marsh and McLennan and a few others. Although these are the larger companies within the industry, they aren t necessarily the most comparable companies to Navigant. The Management Consulting Industry as a whole is expected to grow over the next five years at an average annualized rate of 4.2%, up from the 0.7% average annualized growth the industry experienced over the past five years. With increased competition within the industry, companies will be forced to grow by acquiring smaller competitors, as they will experience some negative price pressure from the high level of competition. Much of the growth of the industry will come from expansion into fast-growing markets in Asia, Latin America, and parts of Europe. While the US has still been experiencing modest growth, companies will need to invest in foreign countries in order to keep pace with their competition. S.W.O.T. ANALYSIS Strengths System of hiring temporary contract consultants on a project basis to better manage their workforce Many of their employees are very highly regarded within their field Weaknesses High costs of labor 4

5 Low utilization rates through the recession because of an inability to adjust to changes in economic conditions Some of their revenue is tied to performance based contracts, resulting in uneven cash flows Opportunities Government and corporate discretionary spending will increase as the economy returns to growth, providing consulting firms an opportunity to capture some of that discretionary spending Strong economic growth in emerging markets for the management consulting industry Increased regulation in the industries which Navigant operates in, primarily financial services, healthcare, and energy, will result in an increase of their spending on consulting services The recent recession has weakened some of Navigant s smaller competitors, some of whom are now at risk of being acquired Threats Extreme competition within the industry can put pressure on margins Some large companies have begun internalizing some of the services that Navigant traditionally offers Competition from firms within other industries, particularly the IT Consulting industry Outsourcing of some basic consulting services to low-cost countries could deteriorate industry revenues and margins PORTER S 5 FORCES ANALYSIS Supplier Power Supplier Power within this industry is relatively low, but once a client begins working with a firm they traditionally stay with that firm for a long period of time. Initially, supplier power is low, but once a relationship is created with a client, it becomes more difficult to switch to another consulting firm. Barriers to Entry Barriers to entry in this industry are very low. There is little to no regulation and the industry is highly fragmented. The only barrier is the specialist knowledge required to compete in the industry. Although some of the larger players within the industry have a substantial share of market power, this doesn t act as a barrier to entry to smaller, niche firms. For example, approximately 90% of businesses within the management consulting industry employ 10 or fewer employees, and the top five firms within the industry account for approximately 8% of industry revenue. 5

6 Buyer Power Buyers in this industry have a great deal of power as the industry is not made up of a few major players. With the fragmented nature of the industry, buyers have many options and can therefore choose a company that fits their needs. Once a relationship is created, though, it can be more difficult to switch to another consulting firm. Threat of Substitutes A major threat to the industry as a whole is the internalization of the services that management consulting firms traditionally offer. This partially results from some of the firms within the industry providing general advice and not understanding the specific situation of a company well enough to provide meaningful consulting. Also, throughout the financial crisis, firms had less capital to allocate to discretionary spending, driving them to reduce their consumption of consulting services. Another threat is the recent trend of outsourcing some of the basic functions traditionally performed by consulting firms to low-cost areas, including India, China, etc. This will result in more competition and increased price pressure within the industry. Degree of Rivalry This industry is in a consolidation phase, increasing the degree of rivalry between competitors. Although the market doesn t have many major players, the competition for market share has increased the degree of rivalry among the firms within the industry. CATALYSTS Upside Broad economic growth would positively impact Navigant Consulting s revenue growth Downside Failure to integrate their acquisitions could have a negative impact on their utilization rates and revenue growth COMPARABLES ANALYSIS I weighted my comparable analysis at 40% because of my relative confidence in my DCF Analysis. While I am confident in my comparables analysis, I am not as confident in the comparables analysis process in general. This led me to weight my DCF slightly more. FTI Consulting, Inc. (FCN) Weighted 20% FTI Consulting, Inc. operates as a business advisory company worldwide. The company operates in five segments: Corporate Finance/Restructuring, Forensic and Litigation Consulting, Economic Consulting, Technology, and Strategic Communications. -Yahoo Finance 6

7 The reason for FTI s lower weighting is the difference in risk that they represent compared to Navigant as well as their overall reach as an organization. Because of their size, FTI is able to offer their customers end to end consulting solutions, achieving larger amounts of revenue from each customer and enabling them to achieve much higher margins than Navigant. FTI Consulting was also able to weather the recession much better than many of their competitors including Navigant, resulting in higher margins and topline revenue growth. Navigant has not been able to maintain their margins or topline growth over the same time period, making FTI less comparable than some of my other comps. Huron Consulting Group, Inc. (HURN) Weighted 35% Huron provides operational and financial consulting services. They break up their business into four consulting segments, which include: Financial, Legal, Health and Educational, and Corporate Consulting. Huron operates along similar segments as Navigant and they also have a similar capital structure. Huron is a great comparable company because of their strong similarities to Navigant. They have experienced very similar trends in their margins and topline revenue. Also, their expected EBITDA growth for 2010 and 2011 is 16 % and 19% respectively, while Navigant is expected to see 13% 1nd 14% EBITDA growth during that same time period. Huron also has a similar beta and similar market risks to Navigant, making it the most comparable company. ICF International, Inc. (ICFI) Weighted 30% ICF International, Inc. provides management, technology, and policy consulting and implementation services to government, commercial, and international clients worldwide. -Yahoo Finance One reason ICFI makes a good comparable to Navigant because they are direct competitors, operating in the same segments. ICFI also has similar risk factors associated with it, evidenced by their similar performance during the recession. They experienced declining topline revenue and a decrease in margins during 2008 and 2009, but have now seemed to stabilize. Their forward looking EBITDA growth is also similar to Navigant s at 9% for the next two years. CRA International, Inc. (CRAI) Weighted 15% CRA International, Inc. operates as a consulting firm that provides economic, financial, and business management consulting expertise worldwide. The company offers its services in two areas: litigation, regulatory, and financial consulting; and business consulting. It provides consulting services to corporate clients and attorneys in a range of litigation and regulatory proceedings, providing research and analysis, expert testimony, and comprehensive support in litigation and regulatory proceedings in various areas of finance, accounting, economics, insurance, and forensic accounting and investigations. -Yahoo Finance CRAI was given the lowest weighting out of all my comparable companies for a number of reasons. They have experienced significant declines in their revenue for each of the past three years with an expected decrease of 4.7% for 7

8 2010. They have also seen a significant decrease in their margins over that period, with no sign of stabilization. CRAI is expected to show flat revenue growth for 2011 and slight growth in 2012, while their EBITDA margin is expected to experience some growth during the next two years from its extremely low level. I used the EV/Revenue, EV/Gross Profit, EV/EBITDA, and EV/OCF multiples. These multiples are similar among my comparable companies and I felt they were appropriate for my analysis. I used the EV/Revenue multiple to analyze how my company is being priced on their ability to generate revenues. I chose the EV/Gross Profit multiple to compare how my company is being priced according to their ability to generate profits compared to its peers. I used EV/EBITDA as a way to show how my company is being priced with respect to its earnings. EV/OCF was used to compare Navigant s ability to generate cash flow and how they are being priced accordingly. DISCOUNTED CASH FLOW ANALYSIS For my DCF analysis I used the percent of revenue method as a way to estimate future segment revenues, cost of sales, and free cash flows. I discounted this stream of free cash flows to get the net present value, which got me to my implied price. Beta I calculated my beta using a 5 year weekly regression against the S&P 500, which returned a beta of.81. This was higher than any of the other betas I calculated, including a 5, 3, and 2 years monthly and 3 and 2 year weekly regressions against the S&P 500. My monthly regressions returned betas of.35,.30, and.61 respectively, while the weekly regressions returned betas of.72 and.78 respectively. I also decided to run a Hamada beta, using the four companies from my comparables analysis and three other related companies. The Hamada returned a beta of.81, and I feel confident in this as a proxy for Navigant s market risk. Revenues I broke their revenues down to their four business segments. I projected revenue for each segment based on a percent of revenues. I projected strong growth for the Dispute and Investigative segment going forward. One reason for this is the increase in litigation that has already begun and will continue as the economy continues to pick up. Navigant also made an acquisition within this segment during 2010 which is expected to add about $30-40M in revenue per year to this segment, resulting from their strong presence in the lucrative New York market. Revenues in Navigant s Business Consulting segment is expected to contribute strong revenue growth for 2011 as a result of a couple of acquisitions made during 2010 to enhance this segment. Navigant acquired Ethos Partners and Summit Blue to enhance their presence in the Healthcare and Energy industries. With the new healthcare reform and changes in the energy industry, these two acquisitions should add significant revenue growth potential for Navigant. Ethos alone is expected to add around $30M in revenue per year. The International Consulting segment s revenues are expected to decline in 2011 resulting from what management says is a lack of demand. As this segment has been a source of growth for many other consulting companies, I think the reason for the decline in the segment is management s increased focus on efficiency and consolidation. They cannot focus on growth until they stabilize their operations and restore their historical margins. For this reason I project negative growth for this segment over the next couple years, followed by years of moderate growth as International Consulting becomes a larger segment of the industry. 8

9 Management expects to see strong growth from the Economic Consulting segment for 2011 and beyond. This segment was created with the acquisition of Chicago Partners in 2008 and experienced very high growth during 2008 and With a recent acquisition and strong organic growth, I expect this operating segment to increase as a percent of Navigant s total revenues going forward. Cost of Revenues Cost of Revenues have increased as a percent of revenue over the past few years as the economic downturn resulted in reduced productivity of each employee, making each dollar of revenue more costly. As the economy begins to stabilize over the coming years, I project this cost to return to historical levels. This industry is historically a high margin industry, and as corporate discretionary spending pushes average billable rates higher I see the margins returning to their normal levels. IBISWorld also projects a decrease in wages as a percent of revenue through 2016 by about 2%, which is reflected in my projections. SG&A Expense I project SG&A to stay constant for the next few years, then to slowly increase to the terminal year. Navigant has just completed a consolidation effort which will result in a lower SG&A expense than they have historically had, but as they continue to grow and acquire companies I expect they will not maintain their current level of efficiency, resulting in higher SG&A expenses. Tax Rate I project my tax rate at 43% over the first few years of my projection as a result of company guidance. Over the past year Navigant has enjoyed a lower tax rate that, based on management s projections, will not be realized going forward. During their most recent conference call, management said to expect a return to their traditional 42-43% tax rate, which I used for the next few years. In the long run I project Navigant to make a push into emerging markets whose tax rates are lower than their 43% tax rate, resulting in a 41% terminal year tax rate. Depreciation I project depreciation to decrease slightly over the next few years as a result of management s focus on consolidation and cost cutting. After this period of consolidation, I expect the company to begin spending more on capital expenditures, leading to higher depreciation. Capital Expenditures I projected capital expenditures to decrease over the next few years followed by a slow increase. This is for the reasons I stated above: Navigant s focus on consolidation and cost-cutting. Acquisitions As a result of company guidance I projected acquisitions to be down during 2011 after a year of large acquisitions in After 2011 I expect Navigant to once again return to years of many acquisitions as a way to remain competitive within the industry. 9

10 Net Working Capital I projected net working capital to grow slightly into the future. As Navigant continues to grow I expect they will begin to hold slightly more cash as a percentage of revenue for strategic acquisitions, as they have historically financed a large percentage of their acquisitions with cash. Other than that I project net working capital to stay relatively constant into the future. Cost of Debt Navigant has a $275M line of revolving credit as well as a $225M term loan line of credit. In their most recent 10-Q, management stated their average borrowing rate was down from 5.6% in 2009 to around 5% on these two lines of credit. They both carry a variable interest rate so I estimated a cost of debt of 5.5%. RECOMMENDATION I weighted my DCF at 60% and my Comparables Analysis 40%, returning an implied price for Navigant Consulting of $ This represents a 27.84% undervaluation of the stock. With a strong earnings report Navigant will put themselves in position for a steady increase in their stock price in the short run, as their current undervaluation is a result of a previous missed earnings report. They are also a great value going forward, with potential long-term growth and a large amount of upside from their strategic acquisitions. For these reasons I recommend a BUY for NCI for all portfolios. Target Price DCF Implied Price (60%) Comparables Implied Price (40%) Target Price Current Price Under (Over) Valued 27.84% 10

11 APPENDIX 1 COMPARABLES ANALYSIS 11

12 APPENDIX 2 DISCOUNTED CASH FLOWS ANALYSIS The University of Oregon Investment Group ($ in millions, except per share data) A Q1- Q Q4 E 2010 A+E 2011 E 2012 E 2013 E 2014 E 2015 E 2016 E 2017 E 2018 E 2019 E 2020 E Total Company Revenue $235.6 $258.0 $317.8 $482.1 $575.5 $ % Y/Y Growth 9.53% 23.16% 51.71% 19.37% 18.46% 12.51% 5.68% % 0.56% 7.21% 4.33% 5.67% 5.49% 5.80% 5.80% 5.58% 4.70% 4.50% 4.08% Cost of Revenue % Revenue 70.69% 65.44% 65.90% 63.10% 63.56% 62.45% 66.08% 64.77% 68.68% 70.24% 64.00% 68.57% 64.00% 63.00% 63.00% 63.50% 63.80% 64.00% 64.00% 64.00% 64.00% 64.20% Gross Profit Gross Margin 29.31% 34.56% 34.10% 36.90% 36.44% 37.55% 33.92% 35.23% 31.32% 29.76% 36.00% 31.43% 36.00% 37.00% 37.00% 36.50% 36.20% 36.00% 36.00% 36.00% 36.00% 35.80% Operating Expenses SG&A % Revenue 24.23% 24.66% 21.13% 19.55% 17.67% 18.71% 18.44% 19.17% 18.25% 17.35% 17.00% 17.26% 17.00% 17.00% 17.50% 18.00% 18.00% 18.50% 18.50% 19.00% 19.00% 19.00% Depreciation % Revenue 3.02% 2.97% 2.36% 1.72% 1.77% 1.97% 2.11% 2.45% 2.67% 2.09% 1.84% 2.02% 2.50% 1.70% 1.70% 1.70% 1.90% 1.90% 1.90% 2.00% 2.00% 2.00% Amortization % Revenue 2.42% 0.92% 0.59% 0.74% 1.48% 1.46% 2.28% 2.02% 1.84% 1.71% 2.00% 1.79% 1.25% 1.90% 2.25% 2.50% 2.00% 1.75% 1.75% 1.60% 1.60% 1.60% Total Operating Expenses % Revenue 29.67% 28.54% 24.08% 22.01% 20.93% 22.14% 22.83% 23.64% 22.76% 21.15% 20.84% 21.07% 20.75% 20.60% 21.45% 22.20% 21.90% 22.15% 22.15% 22.60% 22.60% 22.60% EBIT % Revenue -0.37% 6.02% 10.02% 14.89% 15.51% 15.41% 11.09% 11.59% 8.56% 8.61% 15.16% 10.37% 15.25% 16.40% 15.55% 14.30% 14.30% 13.85% 13.85% 13.40% 13.40% 13.20% Other (Expense) Income % Revenue 0.37% -0.01% 0.23% 0.13% 0.12% 0.09% 0.38% 0.15% 0.20% 0.40% 0.32% 0.38% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% Interest Expense % Revenue 0.00% 0.00% 0.15% 0.51% 0.69% 0.72% 2.01% 2.49% 2.13% 1.69% 1.84% 1.73% 1.50% 2.50% 2.00% 2.00% 1.80% 1.80% 1.75% 1.75% 1.75% 1.75% Unusual Expense % Revenue 3.23% 0.29% 0.14% 0.31% 0.22% 1.09% 1.83% 0.64% 1.25% 0.00% 1.84% 0.49% 0.50% 0.50% 0.25% 0.25% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% Pre-tax Income % Revenue -3.22% 5.72% 9.97% 14.20% 14.72% 13.69% 7.63% 8.62% 5.38% 7.32% 11.80% 8.52% 13.45% 13.60% 13.50% 12.25% 12.30% 11.85% 11.90% 11.45% 11.45% 11.25% Less Taxes (Benefit) Tax Rate 30.07% 40.00% 42.31% 41.00% 42.62% 43.26% 42.95% 42.65% 42.32% 38.38% 38.00% 38.24% 43.00% 43.00% 43.00% 42.50% 42.50% 42.50% 42.00% 41.00% 41.00% 41.00% Net Income Net Margin -2.25% 3.43% 5.75% 8.37% 8.45% 7.77% 4.35% 4.94% 3.10% 4.51% 7.32% 5.26% 7.67% 7.75% 7.70% 7.04% 7.07% 6.81% 6.90% 6.76% 6.76% 6.64% Add Back Depreciation and Amortization % Revenue 5.44% 3.88% 2.95% 2.46% 3.26% 3.43% 4.39% 4.47% 4.51% 3.80% 3.84% 3.81% 3.75% 3.60% 3.95% 4.20% 3.90% 3.65% 3.65% 3.60% 3.60% 3.60% Add Back Interest Expense*(1-Tax Rate) % Revenue 0.00% 0.00% 0.09% 0.30% 0.40% 0.41% 1.15% 1.43% 1.23% 1.04% 1.14% 1.07% 0.86% 1.43% 1.14% 1.15% 1.04% 1.04% 1.02% 1.03% 1.03% 1.03% Operating Cash Flow % Revenue 3.19% 7.32% 8.78% 11.14% 12.10% 11.61% 9.89% 10.83% 8.84% 9.35% 12.29% 10.14% 12.27% 12.78% 12.79% 12.39% 12.01% 11.50% 11.57% 11.39% 11.39% 11.27% Current Assets % Revenue 41.93% 30.39% 36.71% 34.51% 31.26% 29.37% 29.80% 28.19% 35.09% 42.10% 28.75% 21.21% -4.49% 6.91% 10.39% 6.47% 6.46% 5.08% 4.87% 5.82% 4.08% Current Liabilities % Revenue 19.20% 20.34% 20.39% 24.45% 24.96% 19.03% 16.49% 16.11% 18.87% 25.93% 18.39% 17.91% 19.10% 20.07% 19.36% 19.19% 19.10% 18.93% 18.93% 19.14% 19.29% Net Working Capital % Revenue 22.73% 10.04% 16.32% 10.05% 6.30% 10.34% 13.30% 12.09% 16.22% 16.17% 16.17% 14.59% 10.65% 10.03% 12.14% 12.51% 12.80% 12.82% 12.87% 13.06% 12.91% Change in Net Working Capital Capital Expenditures % Revenue 3.25% 2.03% 2.91% 3.05% 3.71% 3.49% 3.14% 0.91% 2.49% 1.56% 1.84% 2.50% 1.50% 1.20% 1.50% 1.80% 2.00% 2.00% 2.20% 2.00% 2.20% Acquistions % Revenue 3.22% 12.69% 3.65% 11.15% 14.40% 8.26% 8.51% 6.69% 1.82% 6.50% 9.97% 3.00% 6.00% 6.50% 5.50% 5.00% 5.00% 4.50% 4.00% 4.00% 4.00% Unlevered Free Cash Flow Discounted Unlevered Free Cash Flows

13 APPENDIX 3 DISCOUNTED CASH FLOWS ANALYSIS ASSUMPTIONS APPENDIX 4 BETA SENSITIVITY ANALYSIS 13

14 APPENDIX 5 REVENUE MODEL The University of Oregon Investment Group ($ in millions, except per share data) Segment 2004A 2005A 2006A 2007A 2008A 2009A 2010 A+E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E Dispute and Investigative Revenue %Growth 17.98% 26.18% 1.99% 4.16% % 0.50% 8.00% 4.50% 5.50% 5.50% 6.00% 6.50% 6.00% 5.00% 5.00% 4.00% % Total Revenue 44.36% 43.85% 46.70% 42.33% 41.72% 40.63% 40.61% 40.91% 40.98% 40.91% 40.92% 41.00% 41.27% 41.43% 41.55% 41.75% 41.72% Business Consulting Revenue % Growth 20.47% 12.44% 4.35% -6.11% % 0.50% 9.00% 5.00% 6.00% 5.50% 5.50% 5.00% 5.00% 4.00% 3.50% 3.50% % Total Revenue 55.64% 56.15% 53.30% 49.43% 43.91% 41.23% 41.21% 41.90% 42.17% 42.30% 42.30% 42.18% 41.87% 41.64% 41.36% 40.96% 40.73% International Consulting Revenue % Growth 25.90% -8.44% % -8.00% -2.00% 3.00% 4.00% 5.50% 5.50% 6.00% 6.00% 6.00% 6.50% % Total Revenue 8.24% 9.81% 10.30% 9.22% 7.91% 7.43% 7.24% 7.14% 7.12% 7.10% 7.13% 7.21% 7.32% 7.49% Economic Consulting Revenue % Growth 50.26% 15.00% 11.00% 6.00% 7.00% 6.50% 6.50% 6.50% 6.00% 5.50% 5.50% 5.00% % Total Revenue 4.55% 7.84% 8.96% 9.28% 9.43% 9.55% 9.64% 9.70% 9.77% 9.81% 9.88% 9.98% 10.06% Total Revenue % Growth 19.37% 18.46% 12.51% 5.68% % 0.56% 7.21% 4.33% 5.67% 5.49% 5.80% 5.80% 5.58% 4.70% 4.50% 4.08% 14

15 APPENDIX 6-NET WORKING CAPITAL MODEL The University of Oregon Investment Group ($ in millions, except per share data) 2004A 2005A 2006A 2007A 2008A 2009A 2010E 2011 E 2012 E 2013 E 2014 E 2015 E 2016 E 2017 E 2018 E 2019E 2020E Net Revenues Current Assets Cash and Cash Equivalents % of Revenues 7.65% 2.58% 1.72% 1.52% 2.85% 6.95% 0.76% 5.00% 1.75% 1.60% 3.00% 3.40% 3.60% 4.00% 4.30% 4.70% 4.70% A/R % of Revenues 23.41% 25.30% 24.65% 24.72% 21.60% 24.27% 24.00% 24.00% 24.50% 25.00% 25.00% 24.80% 24.80% 24.25% 24.00% 24.00% 24.00% Other Current Assets % of Revenues 3.44% 3.37% 3.00% 3.56% 3.74% 3.88% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% Total Current Assets % of Revenues 34.51% 31.26% 29.37% 29.80% 28.19% 35.09% 28.75% 32.50% 29.75% 30.10% 31.50% 31.70% 31.90% 31.75% 31.80% 32.20% 32.20% Current Liabilities A/P % of Revenues 2.93% 1.93% 1.71% 0.98% 1.05% 1.16% 1.20% 1.30% 1.50% 1.75% 1.60% 1.60% 1.50% 1.40% 1.40% 1.40% 1.40% Accrued Payroll and Benefits % of Revenues 12.98% 7.59% 7.18% 8.10% 8.97% 9.86% 8.50% 8.70% 8.90% 9.10% 9.00% 8.80% 8.80% 8.80% 8.60% 8.60% 8.50% Income Tax Payable % of Revenues 0.00% 0.79% 0.87% 0.77% 0.17% 0.00% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% ST Debt and Current Portion LT Debt % of Revenues 0.00% 7.09% 5.07% 1.12% 0.79% 1.75% 1.20% 1.00% 1.60% 2.00% 1.40% 1.30% 1.20% 1.00% 1.00% 1.00% 1.00% Other Current Liabilities % of Revenues 8.55% 7.56% 4.21% 5.52% 5.13% 6.09% 6.00% 7.00% 7.40% 7.50% 7.80% 7.70% 7.60% 7.50% 7.50% 7.50% 7.50% Total Current Liabilities % of Revenues 24.45% 24.96% 19.03% 16.49% 16.11% 18.87% 18.39% 17.91% 19.10% 20.07% 19.36% 19.19% 19.10% 18.93% 18.93% 19.14% 19.29% 15

16 APPENDIX 7- HAMADA BETA CALCULATION APPENDIX 8 SOURCES FactSet IBISWorld Yahoo Finance NCI SEC Filings (10-K, 10-Q) 16