Navigant Consulting's (NCI) CEO Julie Howard on Q4 2015 Results - Earnings Call Transcript

| About: Navigant Consulting, (NCI)

Navigant Consulting, Inc. (NYSE:NCI)

Q4 2015 Earnings Conference Call

February 11, 2016 10:00 ET

Executives

Aaron Miles - Director, Investor Relations

Julie Howard - Chief Executive Officer

Tom Nardi - Interim Chief Financial Officer

Lee Spirer - Executive Vice President and Global Business Leader

Analysts

Kwan Kim - SunTrust

David Gold - Sidoti

Tim McHugh - William Blair & Company

Ben Flox - Avondale Partners

Kevin Steinke - Barrington Research

Bill Dezellem - Tieton Capital Management

Operator

Good morning and welcome to the Navigant’s Fourth Quarter and Full Year 2015 Earnings Conference Call. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at this time. I would like to introduce Mr. Aaron Miles, Director of Investor Relations for Navigant. Mr. Miles, you may begin.

Aaron Miles

Good morning and welcome to Navigant’s fourth quarter and full year 2015 earnings conference call. We have posted our earnings release as well as supplemental information about the quarter and year end on the Investor Relations section of our website.

Before I turn the call over to Julie Howard, Navigant’s Chairman and Chief Executive Officer, I would like to highlight the disclosure at the end of our earnings release for information about any forward-looking statements that maybe made or discussed on this call. Please review this information, along with the company’s SEC filings, for disclosure of information that may impact subjects that we discuss this morning. We will be discussing one or more non-GAAP financial measures on today’s call. Reconciliations to the most comparable GAAP financial measures are contained in the schedule to our earnings release.

I will now turn the call over to Julie Howard.

Julie Howard

Good morning. Thank you for joining us today. We are going to start the call by commenting on our progress during 2015 and then discuss the key drivers of our businesses as we look to 2016. With the particular focus on the breadth of solutions that we bring to our clients in each of the robust industries in which we practice, healthcare, energy and financial services. I am then going to turn the call over to Tom Nardi, our Interim Chief Financial Officer, to review our business performance for the fourth quarter and full year in detail. And following that, I will close out the call by providing commentary around our outlook for 2016.

Let me begin by saying I am extremely pleased with our outcomes from 2015, which were highlighted by healthy organic growth. We made solid progress against our objectives last year and we see strong positive underlying momentum in our businesses going into 2016. During the past year, we continued to build Navigant’s reputation as the durable and reliable growth company, which was demonstrated by results that met or exceeded our original guidance. Following a number of strategic actions we took last year, we are now a much broader and deeper organization, purpose-built to meet the demands from companies impacted by transformational shifts in the dynamic industries we specialize in. In short, we are present and active where growth opportunity and transformation are taking place.

Our own firm’s transformation since 2012 has positioned us and our four business segments as leaders across the three industries that they operate in, healthcare, energy and financial services. Today, more than 80% of our revenue is driven by these three industries. The changing dynamics occurring in each market play to our strength and provide fertile ground for us to assemble capabilities from across our various businesses to drive value for our clients. And I would like to highlight some of those in these industries.

The overall healthcare market remains vibrant and our clients across all aspects of the industry, payer, provider, government and life sciences companies face dramatic change driven by regulation, predominantly the Affordable Care Act. We are uniquely positioned to help institutions and companies evolve and innovate their business models by advising and executing on their behalf. Our areas of particular focus revolve around addressing strategy, payment reform, revenue cycle, fundamental changes in operations both clinical and operational improvement and the infrastructure for community-based medicine. In addition, we also help our clients respond to issues of regulatory compliance, investigation and dispute and are developing data analytics tools to meet the growing demand for technology-enabled solutions.

Similarly, the energy industry continues to face an intense regulatory change as well and our global energy plans which includes utilities and government agencies are facing issues emanating from energy efficiency standards and coal retirement as well as accelerating technology change, performance pressure from commodity markets and consumer choice. In addition, we are also working with utility companies on strategies for generation and transmission operations in what we call the energy cloud.

Lastly, we are also providing asset valuation and capital advisory services to owners and investors and addressing a variety of litigation issues that arise from the turmoil in the oil and gas environment. Likewise, the financial services industry remains impacted by tremendous pressure brought on by a heavy regulatory environment as well. Our clients continue to operate in the shadow of the credit crisis, with the primary area of focus on consumer protection, regulated by the Consumer Financial Protection Bureau. In light of this, the breadth of litigation and dispute continues to be challenging for our clients requiring deep data analytic capabilities and testifying expertise.

To help our clients remediate past efficiencies and create an environment of preventative compliance prospectively, we are bringing our expertise with court appointed monitors, designing programs and controls, fundamentally reengineering processes, building tools that identify necessary changes in protocols and providing quality assurance roles for clients underwriting consumer debt. We have and are evolving our businesses for each industry we serve by focusing on critical themes aligning our solutions to bring the best of our capabilities and adding expertise where the market demands. In addition, while delivering value for our clients this past year, we also made investments to continue to support the demand for our expertise, including adding an offshore delivery capability, making targeted acquisitions, increasing the range of our revenue-generating professionals, enhancing our thought leadership, exploring collaborations with pharmacy startup companies, refreshing our brand and building up our infrastructure for global expansion. These investments have also been supported by specific sales and marketing programs designed to increase the depth of our account penetration and increase the potential to broaden our client base.

Overall, this combination of investment has led to an organization with greater scale, resiliency and sustainable financial results. This was evident in 2015 as we delivered another year of strong RBR growth while also returning to growth in the bottom line. We are entering 2016 with solid momentum. The fundamentals of our business are attractive and the underlying trends across our market are positive. We fully expect to meet the financial objectives we set forth today and to continue to transform our businesses to drive sustainable long-term growth.

I am now going to turn the call over to Tom to discuss our 2015 results in more detail. And following that, I will come back to provide our 2016 outlook.

Tom Nardi

Thank you, Julie. Good morning, everyone. Like Julie, I am pleased to report that Navigant finished off 2015 with the strong fourth quarter and delivered full year results that met or exceeded our original expectations.

Turning right to the bottom line, net income from continuing operations for fourth quarter of 2015 was $13.2 million or $0.27 per share compared to compared to $12.3 million or $0.25 per share in the prior year. Adjusted earnings per share, EPS, was $0.28 for the fourth quarter of 2015 unchanged from 2014. Adjustments to GAAP earnings are detailed in the financial schedules attached to the earnings release.

Let me now review the drivers of 2015’s improved financial performance. Revenues before reimbursements, or RBR, increased 6% for fourth quarter 2015 to $212 million, most of which represented organic growth. For full year 2015, RBR increased a solid 9% on year-over-year basis to $833.8 million with slightly over half that increase attributable to organic growth. The year-over-year growth in RBR was driven by a very strong performance from our healthcare segment as well as solid growth from our energy segment. Our technology, data and process businesses continued to grow and finished the year at 22% of company RBR, up from 18% in 2014 and just 12% 2 years ago.

Adjusted EBITDA totaled $30.9 million for the fourth quarter 2015, up slightly from the same period of 2014. For full year 2015, adjusted EBITDA increased 4% to $120.9 million compared to $116.2 million in 2014. Adjusted EBITDA margin was 14.5% for 2015 versus 15.2% a year ago. The year-over-year decline in adjusted EBITDA margins resulted in part from greater contributions from our transaction, data and process businesses that generally operate at lower margins as well as higher costs related to investments in talent and technology. You may also recall the 2014 results and margins benefited from several large jobs with higher margins as a result of different employee contractor mix.

Let me now review our performance for each of our four segments. Again, 2015 was an outstanding year for our Healthcare segment, with significant organic revenue growth coupled with margin improvement. Fourth quarter 2015 RBR totaled $76 million and increased 23% year-over-year, with over half of that increase being organic. For the full year 2015, Healthcare RBR totaled $289 million, up 29% from 2014 with nearly half of that increase organic. The strength in this segment was broad and driven by increased contributions from our consulting as well as our business process management services. Growth in key consulting areas included provider performance improvement solutions, revenue cycle consulting, life sciences and regulatory work for governmental agencies.

Fourth quarter segment operating profit margin increased to 31% compared to 27% in 2014 and for the full year of 2015 improved to 32% from 29% in 2014. These improvements were reflected in the strong performance of the higher margin consulting practices driven by higher utilization and bill rate as well as increased margins from our business process management services. To recap, our Healthcare segment turned in a very strong year and delivered significant top and bottom line growth while at the same time boosting capabilities, integrating recent acquisitions and growing margins.

Our Energy segment also turned in a solid year with RBR increasing 7% for the fourth quarter 2015 and 9% for the full year to $106 million, all of which reflected organic growth. RBR growth for the quarter was driven by an increase in strategy in operations and market intelligence engagements, reflecting the benefits from the segment’s key accounts program. Full year RBR growth also benefited from sales ramp from senior hiring as well as continued strength with our strategy in operations and engagements, led by risk management transmission planning and performance excellent solutions. Fourth quarter 2015 segment operating profit was flat compared to the same period last year as higher RBR was offset by higher compensation and benefits expenses associated with senior hiring. However, segment operating profit for the full year increased 3% compared to 2014 on higher RBR.

Turning to our Disputes, Investigations & Economic segment, full year 2015 RBR increased 2% year-over-year to $315 million, all of which represented organic growth. An encouraging aspect of segment performance in 2015 was growth from our global construction business, international arbitration, financial services, healthcare and commercial litigation disputes work. Growth in those service areas more than offset lower revenues from our economics business as well as those areas facing more difficult market environments, such as legal technology solutions and forensic investigations. In the face of a changing litigation environment over the past 3 years, revenues and profits in this segment have remained relatively steady. For the third year in a row, segment operating profit totaled approximately $100 million with margins remaining relatively steady over that period in the 33% range. Actions were taken to reduce staffing levels in certain sectors, which resulted in higher severance costs impacting margin performance.

Lastly, the Financial, Risk & Compliance segment RBR for fourth quarter 2015 decreased 9% year-over-year and declined 8% for full year 2015. As we discussed throughout 2015’s earnings calls, the decline in RBR resulted primarily from substantially less work from the ongoing large financial institution client. This impact was partially offset by higher revenues from anti-money laundering and other consumer finance compliance engagements. An encouraging sign was 12% sequential growth in fourth quarter of 2015 RBR from the third quarter as several significant new engagements ramped up. 2015 segment operating profit margins for both the quarter and year returned to more typical levels, still very strong 40%, but declined from robust 2014 performance primarily due to the impact from lower or RBR and from reduced use of flexible resources. So all-in-all, with some ups and downs across the business, 2015 was a solid year turned in, which delivered 9% mostly organic top line growth coupled with stable and solid margins.

Let me now turn to other drivers of 2015’s financial performance. Full year G&A expenses of $147.5 million increased 8% over the prior year. This was primarily due to an increase in staffing levels, incremental costs associated with acquisitions, higher software costs and increased IT infrastructure spending. These increases were partially offset by lower bad debt expense. And overall, G&A expenses as a percent of RBR was essentially flat year-over-year at 17.7%. Depreciation and amortization expenses increased significantly in 2015 over 2014. And this is a trend likely to continue due to higher capital spending and also from higher levels of intangible assets resulting from recent acquisitions.

Our balance sheet remains strong with a leverage ratio of 1.44x at the end of fourth quarter 2015 with significant unused capacity under our revolving credit agreement. Year end 2015 bank debt totaled almost $174 million compared to $110 million at the end of 2014, with the increase mainly due to initial borrowings needed to fund the late 2015 McKinnis Consulting Services acquisition. We repurchased 341,200 shares of common stock during fourth quarter 2015. And for the full year, the company repurchased approximately 1.6 million shares at an aggregate cost of $24 million and an average cost of $15.12. We continue to believe the stock repurchases are an effective way of returning cash to our shareholders.

Capital expenditures totaled almost $8 million for the fourth quarter 2015 and $39 million for the full year 2015 primarily associated with continued investment in technology to support both our corporate purposes as well as for our technology, data and process businesses. In addition, leasehold improvements related to a number of office locations, primarily our office consolidation project in New York City also drove CapEx higher.

Full year 2015 free cash flow totaled $49 million compared to $72.4 million for 2014. The decline reflects increased capital investment spending I have mentioned earlier and deferred acquisition payments. And as you will hear from Julie in a minute, we anticipate to return higher levels of free cash flow in 2016. Navigant’s business model continues to generate significant free cash flow. And we are using this cash to continue to invest in our people, process and technology capabilities while at the same time, returning capital to shareholders via our share repurchase program. So to conclude, we are encouraged by our overall performance in 2015 and so as meeting or exceeding original expectations as well as 2014 results. We remain focused on efficiency, innovation and growth throughout the organization while strategically making additional investments in our businesses.

And I will now turn the call over to Julie to provide our 2016 outlook and to wrap up.

Julie Howard

Thanks Tom. Our 2016 outlook reflects favorable growth trends in our targeted market areas, which we believe should fuel solid top line results in the upcoming year with higher growth in the Healthcare and Energy segments and solid contributions from our disputes and financial risk businesses. Importantly, our EBITDA margins are expected to improve and combined with lower capital expenditures should result in higher free cash flow. We will again deliver EPS growth despite being affected by increased depreciation and higher amortization related to our recent acquisitions. We are targeting RBR in the range of $900 million to $940 million. The midpoint reflects growth of approximately 10%, mostly all organic. We expect a range of $960 million to $1.01 billion of total revenues.

Our outlook for adjusted EBITDA is in the range of $132 million to $145 million. Adjusted earnings per share is estimated to be in the range of $1.05 to $1.15 per share. We are expecting free cash flow in the range of $75 million to $90 million with capital expenditures anticipated to be $30 million to $35 million. Of note, we also expect depreciation and amortization and interest expense will grow as a result of our 2015 investments, including a significant increase in non-cash amortization from the recent acquisition of McKinnis Consulting Services.

Also, as a reminder, we experienced normal seasonality in our employee benefit costs. Our margin in the first quarter of the year can be impacted by 2 to 3 percentage points compared to our full year margin as our 401(k) match, FICA and other comp-related costs we set each January. We expect our margins will increase sequentially through the fourth quarter of 2016 as senior hires continue to contribute stronger revenue generation and as new business process management services client engagements ramp up.

And now, I am going to turn to our segments. We again expect substantial growth from our Healthcare segment with a nice mix of organic growth and contributions from our recent acquisitions. Our healthcare consulting practices remain strong and growing as we are focused on properly aligning resources with areas of strength, most notably in provider performance solutions, life sciences and payer provider strategy. We continue to see growing demand for our overall business process management services operations as we are building up our scale and presence in the market. The health of the BPMS business is supported by the steady flow and experience closing the pipeline for modular engagements, but does not include revenues from any large comprehensive revenue cycle management engagements that we may close during the year. As a reminder, these projects can drive significant revenues and profits over the life of the contracts although first year results are typically impacted by startup costs. Overall, we remain positive on the Healthcare segment as a whole and the pipeline of new opportunities in this space is encouraging.

Our Energy segment is expected to again deliver solid organic growth as well. We continue to see the favorable impact of investments in senior hires made during the last few years and will continue to recruit and invest heavily in this segment. In addition, success in our key client account program has deepened our relationship with key clients and driven an improving pipeline of anticipated projects. We anticipate relatively modest top line growth from both our Disputes, Investigations & Economics and our Financial, Risk & Compliance segments. Within these two segments, there are pockets of really nice growth. However that is offset in our outlook with conservative views of other services facing more challenging market dynamics. Both businesses are expected to contribute solid margins and strong free cash flow.

I want to reiterate that the achievements we accomplished in ‘15 are just the beginning of a very exciting time at Navigant. We have worked hard to build up the depth and breadth of our diverse portfolio of solutions and our strong performance positions us well to deliver durable growth in 2016. Overall, the long-term aspects of our business are healthy and we remain committed to enhancing our ability to serve each of our clients in addition to increasing returns for our shareholders. Thank you for taking the time to join us today.

And with that, operator, we plan to open the call for Q&A.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from Tobey Sommer of SunTrust. Your line is open.

Kwan Kim

Good morning. This is Kwan Kim on for Tobey. Congratulations on the good results this quarter. On the FR&C segment, could you give us some color around the factors behind the lower volume of work, is this client specific or something you are expecting to see from other clients as well in the near future? Thank you.

Julie Howard

Thank you, Kwan. I think as we have talked throughout the year, we had anticipated that we would have a decline in the performance of that segment as a result of lengthening of a particularly large client engagement that we had. We expect it to complete it in the very short-term and that was extended as a result of a regulatory deadline. So, we anticipated a decline in that segment over the course of 2015. As I said in our third quarter earnings call, we had developed a nice backlog of potential new engagements and had anticipated that those would begin to flow as we approach the end of the year and that was the case, which is the result of the increase sequentially in that segment from Q3 to Q4.

Kwan Kim

Okay. And a question on the hiring plans, could you give us an outlook on your hiring plans in the first quarter and beyond and maybe give us some color on the areas you will be focusing on?

Julie Howard

Yes, I mean I think that our hiring plans will mirror the expected performance of our segments. So, we would anticipate the majority of our hiring would be driven into our Healthcare and Energy segments that have the highest organic growth opportunity in 2016. Overall, as a firm throughout the year, we would anticipate organic growth of probably mid single-digits in our full-time equivalent heads.

Kwan Kim

Okay. And regarding large projects, how do they fit into the P&L versus the historical norm, could you give us an update on the proportion or the amount of large projects to-date?

Julie Howard

We have – I think as we think about our 2015 results, we had a decline as an overall percentage of our revenue and the number of large engagements that wasn’t significant, but a good granularity in our project base in 2015. We would expect that to continue. Tom, do you want to?

Tom Nardi

Yes. I would just add that the over $5 million jobs declined somewhat, but the $1 million to $5 million jobs increased. So, we saw little more breadth in our large client work. So we are happy to see that.

Kwan Kim

Okay, thank you for the color.

Julie Howard

Thank you.

Operator

Thank you. Our next question comes from David Gold of Sidoti. Your line is open.

David Gold

Hi, good morning.

Julie Howard

Good morning, David.

David Gold

So, two quick ones, actually. First, on the hiring side, just to follow-up there, can you give a sense on – obviously, as you say, it will track the segments, but if you are thinking there senior versus junior, particularly in the Healthcare business as we think about 2016?

Julie Howard

Yes.

David Gold

I guess let me rephrase it. In other words, are we at a point where we are building out pyramids or are we still looking for senior level talent?

Julie Howard

I think the answer to that would be both, which is probably not materially what you wanted to hear, but we still see robust opportunity to add the capabilities within our faster growing businesses. At the same time, you know that we had an extraordinary year of senior level hiring in 2015. And so naturally, what will come behind that is also a high degree of lower level consulting recruitment in 2016.

David Gold

Got it. Okay, helpful. And then second as we think about the free cash flow, obviously the last couple of years we have been share purchases, just speak about the buckets and how you think about them for, I think the number you gave on free cash $75 million to $90 million acquisition versus repurchases and otherwise?

Tom Nardi

Yes, David. This is Tom.

David Gold

Hey, Tom.

Tom Nardi

We would look at it as we have in the past. We expect to continue to buyback somewhere in the neighborhood of 1.5 million shares, allocate $25 million or so to the share buyback. We have got a CapEx program that’s in the $30 million range. And then we will pay down debt. We will make acquisitions. And we will invest in our talent and a little bit of working capital, so not really any differently that you have seen in the past.

David Gold

Got it. Okay. And then just one last one if I can speak it in is, if we think about the way the landscape has changed in the litigation consulting world obviously targets there a market growth, but are there spots – I think you commented that there are spots that have seen seeing more aggressive growth. We have a goal of building out those areas or do you just sort of keep it as a balanced pie at this point and continue to focus on healthcare and energy?

Julie Howard

Sorry. I think, David, it’s a very good question and I think the beauty of our portfolio is that the areas that we believe will have increased litigation opportunity or have been supporting our results like financial services disputes, that’s been significant for this business. But in addition, the environment in healthcare today between payer and providers is becoming much more litigious. So, we are seeing an increase in healthcare disputes. What’s happening in the oil market is generating an increase in oil and gas disputes. So, specific opportunities align with our expertise and our industry expertise in addition to a very robust global market for construction dispute services is really driving the overall growth of that business. And then, it’s offset by naturally the forensic investigation business, which has been a shortfall for a long time, I think, for many, many ourselves and our competitor businesses and our economic consulting, we would expect maybe just reasonable steady opportunity there.

David Gold

Perfect, that’s helpful. Thank you, both.

Julie Howard

Thank you.

Tom Nardi

Thank you.

Operator

Thank you. Our next question comes from Tim McHugh of William Blair & Company. Your line is open.

Tim McHugh

Yes. Thanks. I just want to ask on the guidance – good morning, I understand you gave obviously your qualitative comments about favorable trends in healthcare and energy and the senior hiring you have done. But the growth percentage is that – is a fair amount step-up from what you have seen before. I guess maybe just to ask in other way, but I guess the degree of confidence and visibility, I guess that – what gave you the confidence I guess to project that degree of growth just given how much of a step-up it is versus the past several years?

Julie Howard

I think Tim, it is exactly what I have been trying to say over the last couple of years, which is we have been working hard to turn and transform the types of businesses that we are in to deepen some of the capabilities that we have so that we have a greater ability to work with our clients for a longer period of time on larger contracts. So some of this is a reflection of the increase in our technology data and process services across the three industries we serve. Some of this is being positioned against industries that remain robust despite the current environment for the general economy. Some of this is driven by the significant investments that we have made in both senior hires over the last 18 months as well as some of the investments like the recent McKinnis acquisition. And then finally, we have lack of a headwind. As you know over the last 3 years or 4 years, we have had the downturn of the mortgage servicing review that became a big headwind for us in ‘14. And last year, we had a little bit of a departure in our economics practice. So we don’t foresee any headwinds and we see good organic growth opportunity in pretty much all of our businesses.

Tim McHugh

Okay. And then, you mentioned how D&A expense is going to be up quite a bit, especially the intangible amortization, can you – I guess, could you quantify how much will intangible amortization be next year given the acquisition?

Tom Nardi

Yes. Tim, the combination of depreciation, higher depreciation on the higher amounts of CapEx over the past several years as well as the amortization of the intangibles related to the acquisitions, the combination of those two will be up about 30% from this year’s actuals.

Tim McHugh

Okay. And then, lastly I just ask given – I think obviously, you talked about performance improvement for hospitals remaining a strong area. Your competitor in town had talked a couple of months ago about seeing weakness there. And the bigger question was really around, I think there is debate around whether hospitals quite frankly were just doing better now because ACA, I think there are some conflicting points saying that not necessarily the case. But I guess, do you view it as just you are outperforming the market or I guess do you – what would be your perspective, I guess on the need for performance improvement services probably in the market?

Julie Howard

Our perspective is that the demand is still there and very robust for our performance improvement business. We do believe that it has shifted so that it is less about a need from the health systems around operational cost cutting type of performance improvement. And more of a focus on how do you link that from a clinical standpoint. So what kind of changes are we making clinically within the health system and that has played into our sweet spot of expertise in where we invested as an organization, Tim. So I think we have certainly secured our fair share of large performance improvement opportunities. Lee, you want to add to that?

Lee Spirer

Tim, there are certainly still hospitals that are in distress, great. And they need immediate cost take out. There is – there will still be demand for that. But more generally, the ones that have some time to address all of the changes that are happening in the market, those are the type of engagements that we are seeing great demand for and have a really nice backlog of work with a number of large hospital systems as well as a strong pipeline that’s much more multidisciplinary, addressing how they deal with different reimbursement models, provider-sponsored risk, again clinician engagement. As we deploy on those, our strategy and performance improvement teams are virtually intertwined. You can’t really tell what’s the strategy engagement and what’s the performance improvement engagement at all in this new era where we are trying to address the fundamental change and evolve these hospital systems to compete in the future. So we see a very robust environment that plays to our strengths.

Tim McHugh

Right. And maybe just one more, Tom what’s the tax rate for next year that you guys are assuming?

Tom Nardi

We are using around 41%.

Tim McHugh

Okay, thanks.

Operator

Thank you. Our next question comes from Randy Reece of Avondale Partners. Your line is open.

Ben Flox

Hi guys, Ben Flox on for Randy Reece. Nice quarter.

Julie Howard

Good morning Ben.

Ben Flox

Listen, it sounds like you expect all segments to grow in 2016, which was a little different than what we had. I am curious what the largest upside surprise was to your outlook since last quarter and also what practices you expect to be a drag on growth going forward?

Julie Howard

I would answer that question Ben, that there isn’t any significant surprise to us in our 2016 outlook. I think we have been trending relatively in this direction for the last year or so. Our healthcare practice has led our growth trajectory for the last couple of years. Energy has been right behind it. If you look at our longer term growth outlook that we have articulated every year for our businesses, we are pretty much tracking to that. So 2016 is not a surprise in our minds. I think it’s a reflection of saying that we are going to try to accomplish what we said we were going to do. And I am sorry, the second half of your question related to Q4?

Ben Flox

No, just going forward, which practices you expect to be a drag on overall growth in 2016, not necessarily segments, but practices in particular?

Julie Howard

I don’t know that. We don’t actually spend a lot of time providing results on the specific practices. In any given year, as you know there are certain businesses that will have a greater demand environment than others. But I have basically said that we believe all of our segments are going to have organic growth opportunity in ‘16.

Ben Flox

Okay. And then on the healthcare, with the number of strategic acquisitions you guys have made, I am just curious how it’s changed the way you sell to new and existing clients, or if it has?

Julie Howard

Well, I think clearly as you have seen, if you track over the last 18 months, the investments that we have made in really thinking about strategy to execution as we address our health clients and being able to focus on the revenue cycle market, which we believe is robust for the long-term, we have made investments on the back end, on the process, the operational execution, our recent acquisition in McKinnis was on the front end as it relates to being in there on the consulting side with EHR optimization. And our investment in RevenueMed last year was really a delivery investment to give us greater delivery capabilities and greater labor arbitrage, if you will. So all of that has been to support our brand and our reputation as a strategy through execution healthcare provider, healthcare services provider.

Ben Flox

Got it. Okay. And then just really quick, as far as sub-$30 oil, how should we think about that in terms of your energy business, I mean I know you guys do a lot more work on utilities, but generally good, generally bad, just trying to get a handle on that?

Julie Howard

It’s – the market remains, I mean the focus for us in our utility business has been on clean energy, supporting our clients in thinking both strategically and operationally on how clean energy and distributed energy are going to impact and evolve their business models over time. We invested in modestly, in our oil and gas capabilities about 18 months ago. And we are probably a little bit ahead of the investment curve. We do anticipate with this sub-$30 that that generates a lot of litigation, that it ultimately will put pressure on our clients and operational pressures such as you see in healthcare environment. But there will be an opportunity to help from a performance improvement standpoint although that is not significantly merged. I don’t know, Tom, Lee if there is anything else you can add?

Lee Spirer

That’s good. We are not that exposed to the E&P part of the business in our energy practice, so...

Ben Flox

So just thinking about it directionally, there is maybe not a clean-cut answer is that what I am getting out of this?

Lee Spirer

I don’t think it’s a big negative if that’s your question.

Ben Flox

Okay, okay. Thanks, guys. Nice quarter.

Lee Spirer

Thank you.

Operator

Thank you. Our next question comes from Kevin Steinke of Barrington Research. Your line is open.

Kevin Steinke

Good morning, everyone.

Tom Nardi

Good morning.

Kevin Steinke

I wanted to see if I could – we could put some more definite numbers around the organic growth in 2015. You said it was more than half organic, just wondering if you had a specific number for that. And also what your 2016 revenue growth outlook implies in terms of the embedded organic growth rate?

Tom Nardi

Yes, Kevin, on ‘16, let me take that first, the only inorganic growth in ‘16 that’s sizable is the McKinnis acquisition. So, all the growth expectations for our Dispute segment, our FR&C segment and our Energy segment are all organic. And then you have got the McKinnis portion in our healthcare business that would be inorganic. So, overall, for our total outlook for the year, it’s about three quarters organic growth.

Kevin Steinke

Okay, okay. That’s helpful. Okay. So, now looking at the EPS guidance don’t mean to nitpick too much here, but you have clearly stated that you expect to return to or to generate EPS growth in 2016, but the bottom end of the range technically implies a slight decline. Is there just a little bit of conservative – conservatism built in there or how should we think about that bottom end of the range?

Tom Nardi

Well, one way to think about it, Kevin is that we finished 2015 at a little bit higher than we expected. So, we came in at $1.07, but the low end of the range is obviously a little bit conservative assumes less top line growth, less margin improvement. I don’t think it’s anything to be worried about.

Kevin Steinke

Okay, good. And on McKinnis, do you expect that – should we think about that being slightly accretive in 2016 despite the higher amortization and interest expense associated with the acquisition?

Tom Nardi

Yes, it will be slightly accretive. That’s a good way to say it, but it will be more accretive going forward. The amortization is more aggressive in the early years. So, it will start looking better in ‘17 and beyond, but it will be accretive in ‘16 assuming they hit their numbers.

Kevin Steinke

Okay, good. And there is some news recently with a little bit of a legal pause here on the EPA’s Clean Power Plan. I mean, do you expect that to have any meaningful impact on your business or how are you thinking about that as it relates to your consulting for utilities?

Tom Nardi

Kevin, this is Tom. I don’t think it really changes much. Nobody is going to start building coal plants. People are still going to look to retire coal plants, move to cleaner burning fuels, the move to distributor generation. So, you described it as a pause. I don’t think it would be much more than that and would not have a big impact on us.

Kevin Steinke

Alright, great. Well, thanks for taking my questions.

Julie Howard

Thanks, Kevin.

Operator

Thank you. Our last question comes from Bill Dezellem of Tieton Capital Management. Your line is open.

Bill Dezellem

Thank you and good morning. Two questions. First of all…

Tom Nardi

Good morning, Bill.

Bill Dezellem

Good morning. Relative to the healthcare market, the organic growth accelerated in the fourth quarter relative to full year ‘15, is that a trend that we should key in on as something important or was that just happened to be how the quarter shook out?

Julie Howard

I mean, I think that you can see in our guidance for ‘16 that we expect that trend to continue and that we have made a decent amount of acquisitions over the last 18 months and we expect Navigant to reap the benefits of the combination of those investments in both hiring in 2015 and also in the investments. Lee, anything you want to add to or talk about?

Lee Spirer

Well I think we anniversaried the Cymetrix acquisition, so the BPMS growth outside of the RevenueMed acquisition is turning organic in the second half. I think as we have talked about earlier about the underlying drivers, we have a number of large engagements that we are running. We ran at a higher level of utilization in the quarter and we expect that to continue relative to the large engagements we have in backlog and the pipeline we see in front of us.

Bill Dezellem

Great. Let’s then shift if we could to the Energy segment. The revenue growth that you had was really consumed by the expense growth and presumably, that’s the high level individuals that you hired recently. Talk to us about kind of how we should think about that going forward because in your opening remarks there was a reference to lower level consultants then being hired to fill in underneath these high folks. So should we anticipate that the revenue growth that these – the higher level consultants bring in that that will be again consumed by the expense of a lower level hires that are anticipated or do we now start to get leverage on those higher level individuals going forward?

Julie Howard

We anticipate Bill that we will be getting leverage on those hires going forward in 2016 in our Energy segment.

Lee Spirer

We have the team that we need to deliver our budget in 2016 with what we have in place in our energy team. We may choose to make some investments to bring additional capabilities in if we find the right people. But we are in a position to begin to realize on the investments that we made in previous years.

Bill Dezellem

Thank you. And then one additional question, this is relative to the Disputes segment and a phrase in the press release that I didn’t quite follow, which was higher costs to better align resources, can you explain what that’s referring to, please?

Julie Howard

That’s probably referring to severance, so additional severance costs in that segment to align our resources to the demand environment and opportunities that we see.

Bill Dezellem

Perfect. And what was that severance cost in the quarter?

Tom Nardi

In the quarter, it was just shy of $1 million.

Bill Dezellem

Great. Thanks to all of you and nice quarter.

Tom Nardi

Thank you.

Julie Howard

Thank you. And I think that’s all the questions that we have, so appreciate everybody’s time and interest today. We look forward to speaking in our next quarterly call.

Operator

Thank you. And that concludes today’s conference. Thank you all for your participation. You may disconnect at this time.

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