FTI Consulting, Inc. 2009 Annual Report (10-K) Summary
Business Context and Reporting Period
This summary covers the fiscal year ended December 31, 2009. FTI Consulting, Inc. is a global business advisory firm operating through five segments: Corporate Finance/Restructuring, Forensic and Litigation Consulting, Economic Consulting, Technology, and Strategic Communications. The company serves Fortune 500 corporations, law firms, and governments, focusing on restructuring, forensic accounting, economic analysis, e-discovery, and strategic communications.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Revenues | $1,399.9 million | $1,293.1 million |
| Operating Income | $263.5 million | $235.3 million |
| Net Income | $143.0 million | $120.9 million |
| Diluted EPS | $2.70 | $2.26 |
| EBITDA | $317.3 million | $279.5 million |
| Operating Cash Flow | $250.8 million | $197.5 million |
| Total Debt (Principal) | $566.1 million | $551.5 million |
| Cash & Equivalents | $118.9 million | $191.8 million |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 8.3% year-over-year, driven by 3% organic growth and 5% from acquisitions. The Corporate Finance/Restructuring segment saw a 37.3% revenue increase due to high demand for restructuring services during the economic recession.
- Profitability: Operating income rose 12.0% and Net Income rose 18.3%. EBITDA margin improved to 22.7% from 21.6% in 2008.
- Segment Performance:
- Corporate Finance/Restructuring: Strong growth in bankruptcy and restructuring work offset declines in M&A advisory.
- Strategic Communications: Revenues declined 19.8% due to reduced M&A activity and capital market transactions.
- Technology: Revenues decreased 3.9% due to lower pricing and fewer large product liability cases, though EBITDA improved.
- Economic Consulting: Revenues increased 6.7%, but margins declined due to expansion costs and lower utilization early in the year.
- Capital Actions: The company executed a $250 million accelerated share buyback in the fourth quarter, repurchasing approximately 4.9 million shares in 2009 (totaling 5.5 million shares upon final settlement in early 2010).
Guidance, Outlook, and Risks
Outlook: Management anticipates a transition from recession-driven countercyclical demand (restructuring) to pro-cyclical demand (M&A, capital markets) as the economy recovers. They expect restructuring demand to decline in 2010 while transaction advisory and strategic communications may stabilize or grow.
Liquidity: The company maintains $118.9 million in cash and $171.2 million in available revolver capacity. Management believes cash flows and liquidity are sufficient for the next 12 months.
Key Risks:
- Convertible Notes: $149.9 million in 3.75% convertible notes are currently convertible at the option of holders (through April 2010) due to stock price performance. Conversion could require significant cash payments.
- Client Concentration: One client accounted for 17% of Technology segment revenue and another for 11% of Forensic and Litigation Consulting revenue.
- Fee Pressure: Clients in financial distress may seek fee discounts or renegotiations, and bankruptcy courts may reduce approved fees.
- Retention: High competition for specialized professionals and significant compensation costs (including forgivable loans) pose retention risks.
Investor Verification Checklist
- Verify the status and potential cash impact of the $149.9 million convertible notes, which are currently convertible.
- Monitor the transition of demand from restructuring services to M&A and capital markets services in 2010.
- Review the concentration risk in the Technology segment (17% from a single client) and Forensic segment (11% from a single client).
- Assess the impact of the $250 million share repurchase on future capital allocation and liquidity.
- Track the utilization rates and billing rates in the Corporate Finance/Restructuring segment as the economic recovery progresses.