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FTI Consulting, Inc. 10-Q Summary: Period Ended June 30, 2007

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2007. FTI Consulting, Inc. is a global business advisory firm providing services in forensic/litigation consulting, corporate finance/restructuring, economic consulting, technology, and strategic/financial communications. The company operates through five reportable segments, with the Strategic and Financial Communications segment established following the acquisition of FD International (Holdings) Limited in late 2006.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 50.0% year-over-year for the quarter and 42.1% for the six-month period. This growth was driven primarily by the inclusion of the FD International acquisition (Strategic and Financial Communications segment) and organic growth in other segments.
• Profitability: Net income rose 82.2% for the quarter and 53.7% for the six-month period compared to 2006. Operating margins improved due to higher utilization rates and increased billing rates.
• Cost Structure: Direct costs of revenues increased 45.8% (quarter) and 38.9% (six months), largely due to increased headcount and acquisition-related costs. Selling, general, and administrative (SG&A) expenses increased 60.3% (quarter) and 49.4% (six months), driven by corporate investments in branding and integration costs.
• Effective Tax Rate: The effective tax rate decreased to 33.3% for the quarter and 38.0% for the six months, down from 44.5% and 45.0% respectively in the prior year, due to tax planning strategies reducing U.S. federal tax on foreign earnings.

Guidance, Outlook, and Risks

• Capital Resources: The company reported $30.3 million in cash and cash equivalents with $140.7 million available under its revolving credit facility (after letters of credit). Management believes these resources are sufficient for the next 12 months.
• Capital Expenditures: Anticipated capital expenditures for 2007 are estimated between $37.0 million and $40.0 million, primarily for IT equipment and leasehold improvements.
• Share Repurchases: The company repurchased 500,000 shares for $18.1 million during the six-month period. Approximately $31.9 million remains available under the current authorization.
• Convertible Notes: $150.0 million in 3 3/4% convertible senior subordinated notes due 2012 are classified as long-term debt. The contingent conversion trigger price was not met during the period.
• Risks: Key risks include the ability to retain qualified professionals, integration of acquisitions, fluctuations in demand for services, and potential litigation settlements. The company noted no material changes to risk factors from the previous 10-K.

Investor Verification Checklist

• Acquisition Impact: Verify the specific contribution of the FD International acquisition to the reported revenue and profit growth, as it represents a new segment.
• Cash Flow Usage: Review the $17.5 million net cash used in operating activities for the six-month period, noting the impact of working capital changes and incentive compensation payments.
• Debt Covenants: Confirm continued compliance with financial covenants under the senior secured credit facility, specifically the total indebtedness to EBITDA ratio.
• Utilization Rates: Monitor the reported utilization rates (e.g., 75% for Forensic/Litigation, 77% for Corporate Finance) as a leading indicator of future revenue stability.
• Contingent Consideration: Assess potential future cash outflows related to earn-out obligations and price protection agreements tied to stock performance for recent acquisitions.