FTI Consulting, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods. FTI Consulting is a global business advisory firm with five segments: Corporate Finance, Forensic and Litigation Consulting (FLC), Economic Consulting, Technology, and Strategic Communications. Amounts below are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $755.0 | $711.5 | $1,478.6 | $1,397.8 |
| Operating income | $64.2 | $84.0 | $143.5 | $172.5 |
| Net income | $51.4 | $62.8 | $110.7 | $127.3 |
| Diluted EPS | $1.43 | $1.77 | $3.10 | $3.61 |
| Adjusted EBITDA | $76.2 | $92.3 | $166.6 | $191.8 |
| Adjusted EBITDA margin | 10.1% | 13.0% | 11.3% | 13.7% |
| Operating cash flow | $35.0 | $125.6 | $(168.7) | $(41.0) |
| Free cash flow | $22.0 | $105.8 | $(194.4) | $(68.8) |
- Q2 revenue rose 6.1% year over year; excluding estimated foreign-exchange effects, it rose 9.2%. First-half revenue increased 5.8% reported.
- Q2 operating income fell 23.5% and net income fell 18.1%. Higher direct compensation and SG&A, including costs associated with headcount growth, outweighed revenue growth.
- Cash and cash equivalents were $255.7 at June 30, down from $494.5 at year-end 2021. Accounts receivable, net, increased to $905.5 from $754.1; DSO was 102 days, unchanged year over year.
- Long-term debt, net, was $314.3, consisting primarily of the 2.0% convertible notes due August 2023. The $550.0 revolving facility had no borrowings outstanding; $549.6 of capacity was available after letters of credit. Cash less debt was approximately $(58.6).
- Current assets were $1,291.7 and current liabilities were $570.9. The company reported compliance with its debt covenants.
Changes by segment
- Corporate Finance: Q2 revenue rose 20.0% and Adjusted Segment EBITDA rose to $55.0 from $40.2, supported by stronger demand and realized rates. First-half revenue increased 16.0%.
- FLC: Q2 revenue increased 9.0%, but Adjusted Segment EBITDA declined to $16.7 from $18.0. First-half EBITDA fell to $34.0 from $47.4, reflecting weaker utilization in disputes and data and analytics and higher compensation and SG&A.
- Economic Consulting: Q2 revenue declined 10.5% and Adjusted Segment EBITDA fell to $21.6 from $30.7. The filing cites lower M&A-related antitrust demand and lower realization, including revenue deferrals; utilization also declined.
- Technology: Q2 revenue declined 1.1%, while Adjusted Segment EBITDA fell to $8.4 from $18.5. Higher headcount and contractor costs and lower managed-review profitability compressed margins.
- Strategic Communications: Q2 revenue grew 6.0%, but Adjusted Segment EBITDA declined to $11.5 from $13.5. First-half revenue and EBITDA increased 10.5% and 13.7%, respectively.
Outlook, risks and unusual items
- The filing does not provide specific earnings or revenue guidance. Management said operating cash flows, supplemented by the revolving facility if needed, are expected to fund cash requirements for at least the next 12 months, subject to stated uncertainties.
- Planned capital expenditures for the remainder of 2022 were estimated at $32–$39. The company spent $25.6 on capital expenditures in the first half.
- Management highlighted demand, utilization, billing rates, collections, recruiting and retention, foreign exchange, economic conditions, acquisitions, cybersecurity, and COVID-19-related disruptions as factors that could affect results. COVID-19 effects on service delivery varied by segment and geography.
- The 2023 Convertible Notes had $316.2 principal outstanding and mature August 15, 2023. Holders could convert during Q3 2022 under the indenture’s conditions; conversion principal must be paid in cash. The notes’ June 30 fair value was $568.6, and their if-converted value exceeded principal by $247.9 based on the company’s share price.
- Adoption of ASU 2020-06 on January 1, 2022 changed convertible-note accounting, adding approximately $16.4 to the debt carrying value and reducing non-cash interest expense going forward. This accounting change affects period comparability.
- The company acquired a Corporate Finance business for $6.7 net of cash received and recorded $11.1 of preliminary goodwill and $5.4 of contingent consideration. Management reported no legal proceedings believed to have a material adverse effect and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether the revenue growth in Corporate Finance and other stronger areas can offset continued weakness in Economic Consulting and Technology.
- Whether staffing and compensation growth translate into improved utilization, margins, and Adjusted EBITDA.
- Receivables growth, collection trends, and the seasonal timing of incentive compensation and operating cash flows.
- Plans and funding for the August 2023 convertible-note maturity, including potential cash requirements from conversion.
- Actual capital expenditures versus the remainder-of-year estimate, and any changes in liquidity, acquisition spending, or share repurchases.