FTI Consulting, Inc. - 10-Q Summary (Period Ended June 30, 2001)
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2001, and the six-month period ended June 30, 2001. FTI Consulting, Inc. is a multi-disciplined consulting firm operating in three segments: Financial Consulting, Litigation Consulting, and Applied Sciences. The company provides services including financial restructuring, forensic accounting, litigation support, and engineering investigations.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2001 | Six Months Ended June 30, 2000 |
|---|---|---|
| Revenues | $83.6 million | $65.6 million |
| Net Income | $8.0 million | $3.0 million |
| Earnings Per Share (Diluted) | $0.65 | $0.43 |
| Operating Cash Flow | $7.6 million | $3.0 million |
| Goodwill (Net) | $90.2 million | $92.0 million |
| Total Debt | $45.3 million | $60.5 million |
| Cash and Equivalents | $2.5 million | $3.0 million |
Margins: Gross margin (Revenues less Direct Costs) was approximately 48.0% for the six months ended June 30, 2001, compared to 50.0% in the prior year period. The effective income tax rate for the six months ended June 30, 2001, was 42.0%.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 27.4% year-over-year. The Financial Consulting division drove this growth with a 66.4% increase to $48.1 million. Conversely, Litigation Consulting revenues declined 15.2% to $14.5 million due to deferred or cancelled trials.
- Profitability: Net income more than doubled to $8.0 million, primarily driven by higher operating income and a significant reduction in interest expense.
- Debt Reduction: Long-term debt decreased substantially. The company used proceeds from an equity offering in late 2000 and cash from operations to repay $15.2 million of debt in the first half of 2001. Interest expense dropped from $5.6 million (2000) to $2.7 million (2001).
- Segment Performance: Financial Consulting accounted for 76.0% of total segment profit in the first half of 2001, up from previous periods, while Litigation Consulting profitability was pressured by lower utilization.
Guidance, Outlook, and Risks
- Accounting Changes: The company will adopt FASB Statement No. 142 effective January 1, 2002, which eliminates goodwill amortization. Management expects this to increase pre-tax income by approximately $5 million annually starting in 2002, subject to annual impairment testing.
- Outlook: Management anticipates an effective tax rate of 42.0% for the full year 2001. The company expects available cash and credit facilities to be sufficient for normal operating requirements.
- Risks: Key risks include the labor-intensive nature of the business (loss of key employees), competition, professional liability, and the impact of interest rate fluctuations on the remaining $15.0 million of variable-rate debt. A 200 basis point increase in interest rates would decrease net income by approximately $170,000 annually.
- Unusual Items: The prior year period (2000) included an extraordinary loss of $869,000 related to the early extinguishment of debt, which did not recur in 2001.
Investor Verification Checklist
- Verify the sustainability of the 66.4% revenue growth in the Financial Consulting segment versus the 15.2% decline in Litigation Consulting.
- Confirm the impact of the upcoming FASB Statement No. 142 adoption on future earnings and goodwill impairment testing in 2002.
- Review the company's ability to maintain compliance with financial covenants on its $45.3 million credit facility.
- Assess the effectiveness of cost-containment measures in the Litigation Consulting division to reverse revenue declines.
- Monitor the utilization of the $47.5 million revolving credit line, of which $15.0 million was outstanding as of June 30, 2001.