FTI Consulting, Inc. - Q1 2002 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2002. FTI Consulting, Inc. is a multi-disciplined consulting firm operating through three segments: Financial Consulting, Applied Sciences, and Litigation Consulting. The company provides services in financial restructuring, litigation support, and engineering/scientific investigation.
Key Financial Metrics
| Metric | Q1 2002 | Q1 2001 |
|---|---|---|
| Revenues | $50.7 million | $41.5 million |
| Net Income | $6.6 million | $3.8 million |
| Earnings Per Share (Diluted) | $0.31 | $0.21 |
| Operating Cash Flow | ($3.1 million) used | $2.1 million provided |
| Cash and Equivalents | $7.2 million | $12.9 million (Dec 31, 2001) |
| Total Debt | $27.1 million | $28.2 million (Dec 31, 2001) |
| Direct Cost of Revenue Margin | 50.2% | 52.6% |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 22.2% year-over-year. Financial Consulting grew 29.6% and Applied Sciences grew 25.1%, while Litigation Consulting declined 7.4%.
- Profitability: Net income increased 72% to $6.6 million. This was significantly aided by the cessation of goodwill amortization following the adoption of FAS 142 on January 1, 2002.
- Cash Flow: Operating cash flow turned negative ($3.1 million used) compared to positive in the prior year, primarily due to an $8.4 million increase in accounts receivable and the payment of $4.3 million in accrued compensation.
- Acquisition: The company acquired Technology & Financial Consulting, Inc. (TFC) for $4.1 million ($3.1 million cash, $1.0 million stock) on January 2, 2002, adding intellectual property consulting capabilities.
Guidance, Outlook, and Risks
- Outlook: Management expects strong demand for Financial Consulting services to continue. Applied Sciences growth is expected to return to its historical 6-10% range after a spike in Q1 due to World Trade Center restoration work. Litigation Consulting is expected to remain under pressure due to deferred trials.
- Capital Expenditures: The company expects to spend approximately $5.0 million on property and equipment for the full year 2002.
- Liquidity: The company holds $7.2 million in cash and has $46.6 million available under a revolving credit facility, which has not been drawn upon.
- Accounting Changes: The company adopted FAS 142 (Goodwill) and FAS 144 (Long-Lived Assets). While goodwill is no longer amortized, the company must perform annual impairment tests. Management does not currently anticipate a material transitional impairment charge.
- Risks: Market risk exists regarding variable rate debt, though this is hedged via interest rate swaps. Forward-looking statements are subject to risks including economic conditions and industry competition.
Investor Verification Checklist
- Verify the sustainability of the 29.6% revenue growth in the Financial Consulting segment.
- Monitor the trend in accounts receivable, which increased significantly ($8.4 million) in Q1, impacting operating cash flow.
- Confirm the outcome of the first annual goodwill impairment test required under FAS 142, scheduled for Q2 2002.
- Assess the integration and revenue contribution of the TFC acquisition.
- Review the trajectory of the Litigation Consulting segment, which continues to face headwinds from deferred trials.