FCN

FTI Consulting, Inc. - Q3 2009 10-Q Summary

Business Context and Reporting Period

This filing is a Quarterly Report on Form 10-Q for FTI Consulting, Inc., a global business advisory firm, for the period ended September 30, 2009. The company operates through five segments: Corporate Finance/Restructuring, Forensic and Litigation Consulting, Strategic Communications, Technology, and Economic Consulting. The financial statements have been revised to reflect the correction of an immaterial error regarding contingent acquisition payments and the retrospective adoption of a new accounting principle (ASC 470-20) for convertible debt.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Q3 revenues increased 7.1% year-over-year, driven by a 39.2% surge in the Corporate Finance/Restructuring segment due to global recession-related restructuring demand. This offset declines in Strategic Communications and Technology segments.
• Profitability: Operating income rose 21.3% in Q3, aided by higher segment income and a 10.5% reduction in unallocated corporate expenses. Net income increased 42.5%.
• Accounting Revisions: Prior year results (2008) were restated. The correction of an immaterial error and the adoption of ASC 470-20 reduced 2008 net income by approximately $4.5 million and diluted EPS by $0.08 for the nine months ended September 30, 2008.
• One-Time Gain: Q3 2009 included a $2.3 million non-tax-effected gain from the remeasurement of a German joint venture investment upon consolidation.
• Cash Flow: Operating cash flow for the nine months ended September 30, 2009, increased 53.6% to $163.5 million, reflecting stronger collections and lower tax payments.

Guidance, Outlook, and Risks

• Stock Repurchase: On November 4, 2009, the Board authorized a new $500 million stock repurchase program, terminating the previous $50 million program. The company intends to execute an accelerated buyback of $250 million.
• Liquidity: As of September 30, 2009, the company held $278.0 million in cash and equivalents, $35.7 million in short-term investments, and had $171.1 million available under its revolving credit facility.
• Convertible Notes: $150 million in Convertible Senior Subordinated Notes due 2012 are currently convertible at the option of holders. The conversion value exceeds the principal amount by approximately $54.5 million based on the September 30 stock price.
• Risks: Key risks include the ability to attract and retain professionals, economic conditions affecting client demand (particularly in M&A and capital markets), and the potential for significant cash outflows if convertible notes are converted or stock price guarantees are triggered.

Investor Verification Checklist

• Restatement Impact: Verify the specific impact of the immaterial error correction and ASC 470-20 adoption on historical comparability, particularly regarding interest expense and net income.
• Convertible Note Conversion: Assess the likelihood of conversion of the $150 million convertible notes given the current stock price premium over the conversion price and the company's cash position to fund potential cash settlements.
• Segment Performance: Monitor the sustainability of the Corporate Finance/Restructuring segment's growth versus the continued pressure on the Strategic Communications segment due to M&A slowdowns.
• Stock Buyback Execution: Track the execution of the new $500 million repurchase program and its impact on share count and earnings per share.
• Foreign Exchange: Evaluate the impact of the strengthening U.S. dollar on international revenue streams, particularly in the UK and Europe.