FTI Consulting, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. Amounts are in U.S. dollars unless stated otherwise.
Business context and results
FTI Consulting is a global business advisory firm with five reporting segments: Corporate Finance, Forensic and Litigation Consulting (FLC), Economic Consulting, Technology, and Strategic Communications. Revenue is primarily from professional services, including time-and-expense, fixed-fee, and contingent arrangements.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $702.2m | $622.2m | $2,100.0m | $1,834.7m |
| Operating income | $88.5m | $73.1m | $261.0m | $211.7m |
| Net income | $69.5m | $50.2m | $196.8m | $155.1m |
| Diluted EPS | $1.96 | $1.35 | $5.58 | $4.11 |
| Adjusted EBITDA (non-GAAP) | $100.3m | $90.9m | $292.0m | $249.9m |
| Adjusted EBITDA margin (non-GAAP) | 14.3% | 14.6% | 13.9% | 13.6% |
Q3 revenue increased 12.9% (10.7% excluding estimated FX and acquisition effects); nine-month revenue rose 14.5%. Approximate GAAP operating margin was 12.6% in Q3 versus 11.7%, and 12.4% for nine months versus 11.5%. No special charges were recorded in 2021; 2020 included $7.1m of office-relocation and FLC severance costs.
Cash flow, liquidity and debt
- Nine-month operating cash flow was $155.9m, compared with $141.0m in 2020. Free cash flow, a non-GAAP measure, was $103.5m versus $115.3m, reflecting higher capital spending.
- For Q3 alone, management reported operating cash flow of $196.9m and free cash flow of $172.2m, compared with $111.6m and $99.8m, respectively, in Q3 2020. DSO was 100 days versus 104.
- Cash and equivalents were $342.5m at September 30, 2021. Long-term debt, net, was $319.4m; principal debt consisted of $316.3m of 2.0% convertible notes due August 2023 and $25.0m drawn on the revolving facility.
- The $550m revolving facility had $523.9m available, after borrowings and letters of credit. The company reported compliance with debt covenants. Management said operating cash flows and available borrowing capacity were expected to fund needs for at least the next 12 months, subject to stated risks.
- Nine-month capital expenditures were approximately $52.5m, including costs for the new New York office. The company expected a further $20m–$25m of capital expenditures in the remainder of 2021.
Material changes and segment performance
All five segments grew revenue in Q3. FLC (+22.0%) and Strategic Communications (+31.1%) recorded the strongest Q3 growth; Technology grew 10.4%, Economic Consulting 11.3%, and Corporate Finance 5.8%. For the first nine months, Technology grew 35.5%, FLC 19.8%, Economic Consulting 19.7%, Strategic Communications 17.6%, and Corporate Finance 2.5%.
Profit trends were mixed. FLC, Economic Consulting, and Strategic Communications improved Q3 segment operating income. Corporate Finance was nearly flat, while Technology segment operating income fell 48.8% amid higher compensation, headcount, and SG&A. Corporate Finance’s nine-month operating income and adjusted segment EBITDA declined, primarily reflecting lower restructuring demand and utilization. Management attributed broader gains to stronger demand, while compensation costs, headcount growth, and SG&A partly offset revenue growth.
Q3 net income benefited from higher revenue and $7.6m more net foreign-exchange gains than in the prior-year quarter. For the first nine months, results also included a $3.1m remeasurement gain on acquisition-related contingent consideration. Share repurchases were $46.1m for the nine months, compared with $184.2m in the prior-year period; $167.1m remained authorized at quarter-end.
Outlook, risks and contingencies
- The filing provides no specific revenue, earnings, or EPS guidance. Management described demand growth across segments but noted that results may vary with engagement timing, utilization, billing rates, and contingent-fee recognition.
- COVID-19 continued to affect service delivery through travel restrictions, court closures and backlogs, and restructuring moratoriums. The effects of variants, vaccination requirements, employee retention, and headcount growth remained uncertain.
- Other stated risks include client demand and collections, hiring and retention of professionals, cybersecurity and data protection, acquisition execution, foreign exchange, tax-law changes, LIBOR transition, and climate- and ESG-related expectations.
- The $316.3m convertible notes became eligible for holder conversion during October–December 2021 under the note terms; management classified the notes as long-term based on its intent and ability to refinance the principal. The notes mature in August 2023.
- The company said ordinary-course legal matters were not expected to materially affect its financial position or results. No material change in contractual obligations or market-risk exposure was reported.
Most important facts for investors to verify
- Whether strong revenue growth translates into sustained margins, particularly given Q3 adjusted EBITDA margin compression and weaker Technology and Corporate Finance trends.
- Whether cash conversion normalizes: nine-month free cash flow declined despite higher operating cash flow, with increased capital spending and receivables affecting cash flows.
- Current conversion, refinancing, and settlement plans for the 2023 convertible notes, including any effects on cash, debt, or share dilution.
- How demand, utilization, staffing costs, and contingent-fee timing develop across segments, and whether COVID-related disruptions persist.
- Reconcile cash-flow figures when comparing periods: the filing reports $155.9m operating cash flow for the nine months and separately reports $196.9m for Q3 alone.