FTI Consulting, Inc. - 10-Q Summary (Period Ended September 30, 2001)
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2001, and the nine-month period ended on the same date. FTI Consulting, Inc. is a multi-disciplined consulting firm operating through three segments: Financial Consulting, Litigation Consulting, and Applied Sciences. The company provides services in financial restructuring, litigation support, and engineering/scientific investigation.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2001 | Nine Months Ended Sep 30, 2001 |
|---|---|---|
| Revenues | $40.6 million | $124.2 million |
| Net Income | $3.6 million | $11.6 million |
| Operating Income | $7.0 million | $23.4 million |
| Diluted EPS | $0.27 | $0.91 |
| Cash from Operations | N/A | $12.5 million |
| Total Debt (Current + Long-term) | $33.7 million | $33.7 million |
| Cash and Equivalents | $2.8 million | $2.8 million |
Margins: Direct cost of revenues was 51.3% for the quarter and 51.8% for the nine-month period. Selling, general, and administrative (SG&A) expenses were 28.3% of revenue for the quarter and 26.3% for the nine-month period.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 21.6% year-over-year for the quarter and 25.5% for the nine-month period. Financial Consulting revenue grew 38.0% (quarter) and 56.2% (nine months), while Litigation Consulting revenue declined 13.8% (quarter) and 14.4% (nine months).
- Profitability: Net income for the nine months ended September 30, 2001, was $11.6 million, compared to $4.4 million in the prior year period. This significant increase is driven by higher operating income and a substantial reduction in interest expense.
- Debt Reduction: Interest expense dropped significantly due to debt paydowns and refinancing. Total debt outstanding decreased from approximately $60.5 million at year-end 2000 to $33.7 million at September 30, 2001.
- Segment Performance: Financial Consulting accounted for 76.0% of total segment profit in the first nine months of 2001.
Outlook, Risks, and Unusual Items
- Accounting Changes: The company adopted FAS 133 (Derivatives) in 2001, resulting in a $348,000 charge to other comprehensive loss. FAS 142 (Goodwill) will be effective in 2002, eliminating goodwill amortization (currently ~$5 million annually) and replacing it with annual impairment testing.
- Post-9/11 Impact: Management noted a temporary reduction in collections immediately following September 11, 2001, leading to higher receivable balances. Collections accelerated in early October 2001.
- Liquidity: The company generated $12.5 million in operating cash flow for the nine-month period. It utilized proceeds from stock option exercises ($17.9 million) and an employee stock purchase plan ($1.0 million) to pay down $26.8 million of debt.
- Risks: Key risks include the loss of key employees, professional liability, competition, and the impact of technological changes on the Litigation Consulting division. The company is subject to financial covenants on its credit facility, which it expects to meet.
Investor Verification Checklist
- Verify the sustainability of the 56% revenue growth in the Financial Consulting segment.
- Monitor the recovery of the Litigation Consulting segment, which has seen consecutive declines due to trial cancellations.
- Confirm the impact of the September 11, 2001, events on accounts receivable aging and future collection rates.
- Review the upcoming transition to FAS 142 in 2002 and the potential for goodwill impairment charges.
- Assess the company's ability to maintain compliance with debt covenants as leverage ratios improve.