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FTI Consulting, Inc. 10-Q Summary: Period Ended June 30, 2009

Business Context and Reporting Period

This is a Quarterly Report (Form 10-Q) for FTI Consulting, Inc., a global business advisory firm, for the period ended June 30, 2009. The company operates through five segments: Corporate Finance/Restructuring, Forensic and Litigation Consulting, Strategic Communications, Technology, and Economic Consulting. The financial statements reflect the retrospective adoption of FSP APB 14-1 regarding convertible debt accounting on January 1, 2009.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 6.8% year-over-year for the quarter and 9.9% for the six-month period. Organic growth was 1.5% for the quarter, with the remainder driven by acquisitions completed in 2008.
• Segment Performance:
  • Corporate Finance/Restructuring: Strongest performer with 39.4% revenue growth (quarter) driven by high demand for restructuring services due to the global credit crisis.
  • Strategic Communications: Significant decline of 28.4% (quarter) due to reduced M&A activity, IPO work, and foreign currency translation impacts (weakening British Pound).
  • Technology: Revenue increased 5.5% (quarter) with improved gross margins due to higher volumes offsetting pricing pressure.
  • Forensic & Litigation: Revenue declined 5.5% (quarter) due to lower trial services and regulatory activity, though margins improved.
• Profitability: Operating income increased 6.1% for the quarter. EBITDA margin improved to 23.5% of revenue (quarter) from 23.0% in the prior year.
• Accounting Change: Adoption of FSP APB 14-1 increased interest expense and reduced net income for prior periods retrospectively. The cumulative effect decreased retained earnings by $7.6 million.

Outlook, Risks, and Management Commentary

• Outlook: Management believes current cash flows and liquidity ($213.1 million cash + $171.1 million credit facility) are sufficient for the next 12 months. Capital expenditures for 2009 are estimated between $33 million and $38 million.
• Convertible Notes: $150 million in Convertible Notes are currently convertible at the option of holders through October 15, 2009. The conversion value exceeds the principal amount by approximately $93.4 million based on June 30 stock prices. Management does not anticipate significant conversions unless the value ratio changes.
• Risks: Key risks include the global economic downturn affecting discretionary spending, foreign currency fluctuations (specifically the British Pound), and the ability to attract and retain qualified professionals.
• Unusual Items: Interest rate swaps with a $60 million notional amount were terminated in June 2009, resulting in a $2.3 million gain to be amortized as a reduction to interest expense.

Investor Verification Checklist

• Convertible Debt Conversion Risk: Verify the current market price of FTI stock relative to the $31.25 conversion price to assess the likelihood of cash outflows or dilution from the $150 million convertible notes.
• Foreign Currency Impact: Review the sensitivity of international revenues (particularly UK operations) to the strengthening U.S. dollar.
• Segment Mix Shift: Confirm the sustainability of the high growth in the Corporate Finance/Restructuring segment versus the decline in Strategic Communications as the global credit crisis evolves.
• Bad Debt Provisions: Monitor the provision for doubtful accounts, which increased to $12.2 million for the six months ended June 30, 2009, reflecting economic pressures on clients.
• Acquisition Integration: Assess the contribution of 2008 acquisitions to current revenue growth and the associated amortization expenses.