FTI Consulting, Inc. Q1 2010 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2010. FTI Consulting, Inc. is a global business advisory firm operating in five segments: Corporate Finance/Restructuring, Forensic and Litigation Consulting, Economic Consulting, Technology, and Strategic Communications. The company reported 3,399 employees as of the period end.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Revenues | $350.0 million | $347.8 million |
| Operating Income | $31.8 million | $60.6 million |
| Net Income | $14.2 million | $31.7 million |
| Diluted EPS | $0.29 | $0.60 |
| Adjusted EBITDA | $75.9 million | $74.0 million |
| Cash Used in Operating Activities | ($27.3 million) | ($9.8 million) |
| Cash and Cash Equivalents | $80.9 million | $157.7 million |
| Total Debt (Current + Long-term) | $560.3 million | $554.7 million |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 0.6% year-over-year. Excluding foreign currency impacts, organic revenue declined 1.3%.
- Profitability Decline: Operating income dropped 47.5% primarily due to $30.2 million in special charges not present in the prior year. These charges included $19.3 million for workforce reduction (144 employees), $7.8 million for lease terminations, and $3.1 million for accelerated software amortization.
- Segment Performance:
- Corporate Finance/Restructuring: Revenues declined 7.9% due to softness in U.S. bankruptcy markets and lower utilization (69% vs 83%).
- Economic Consulting: Revenues grew 22.7% driven by new European practices and demand from financial crisis-related disputes.
- Technology: Revenues declined 2.1%, but Adjusted EBITDA grew 31.8% due to margin improvements and cost controls.
- Cash Flow: Operating cash outflows increased significantly ($27.3M vs $9.8M) due to higher forgivable loan fundings, annual incentive payments, and tax payments.
Guidance, Outlook, and Risks
- Liquidity: The company holds $80.9 million in cash and has $171.2 million available under its revolving credit facility. Management believes these resources are sufficient for the next 12 months.
- Convertible Notes: The company's 3 3/4% senior subordinated convertible notes are currently convertible at the option of holders through July 15, 2010, as the stock price exceeded the conversion threshold. Management does not anticipate immediate conversion but has adequate resources to fund it if necessary.
- Capital Expenditures: Estimated at $34 million to $40 million for 2010.
- Risks: Key risks include changes in demand for services, ability to retain professionals, competition, and general economic factors affecting restructuring and M&A activity.
Investor Verification Checklist
- Special Charges Impact: Verify the timing of the remaining $18.2 million cash outflow associated with the $30.2 million special charges (expected to be paid through 2013).
- Utilization Rates: Monitor the recovery of utilization rates in the Corporate Finance/Restructuring segment, which fell to 69%.
- Convertible Note Conversion: Track the stock price relative to the $31.25 conversion price and the $37.50 threshold to assess potential dilution or cash outflow from note conversions.
- Foreign Currency Exposure: Assess the impact of currency fluctuations, particularly the British pound and Australian dollar, on reported revenues and earnings.
- Acquisition Integration: Review the performance of recent acquisitions, specifically the new European Economic Consulting practice, which is currently experiencing margin compression.