FTI Consulting, Inc. 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 1998, for FTI Consulting, Inc., a provider of strategic and economic consulting services. The company is incorporated in Maryland. As of August 13, 1998, there were 4,753,901 shares of common stock outstanding.
Key Financial Metrics
| Metric (in thousands) | Six Months Ended June 30, 1998 | Six Months Ended June 30, 1997 |
|---|---|---|
| Revenues | $25,969 | $19,011 |
| Net Income | $1,675 | $1,350 |
| Operating Income | $2,909 | $2,158 |
| Operating Margin | 11.2% | 11.4% |
| Net Cash from Operating Activities | $873 | $769 |
| Cash and Equivalents (End of Period) | $3,816 | $5,324 |
| Total Debt (Current + Long-term) | $12,200 | $1,930 |
| Goodwill | $14,764 | $5,141 |
Note: Debt figures reflect a significant increase due to acquisition financing. Cash equivalents decreased from the prior year-end balance of $5,894 to $3,816.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 36.6% year-over-year for the six-month period, driven by acquisitions (LWG, Bodaken, and KK&A) and approximately 10% internal growth.
- Profitability: Net income rose 24.1% to $1.675 million. However, operating margin slightly contracted from 11.4% to 11.2% due to higher selling, general, and administrative expenses associated with new operations.
- Balance Sheet: Total assets grew from $29.2 million to $40.5 million. Goodwill increased by $9.6 million following the acquisition of Klick, Kent & Allen, Inc. (KK&A). Total liabilities increased significantly, primarily due to $6 million in promissory notes issued for the KK&A acquisition.
- Cash Flow: Net cash provided by operating activities remained relatively flat ($873k vs $769k) despite higher net income, due to changes in working capital (decreases in accounts receivable and accounts payable). Financing activities provided $1.271 million, largely from the exercise of stock options.
Outlook, Risks, and Unusual Items
- Acquisition of KK&A: Effective June 1, 1998, the company acquired KK&A for $10 million. Payment terms include $6 million due July 1, 1998, and $4 million in subsequent installments. Additionally, contingent consideration equal to 50% of KK&A's pre-tax profits for three years is payable annually.
- Liquidity: Management expects available cash and existing short-term lines of credit to be sufficient for near-term operating requirements. On July 1, 1998, the company borrowed $6 million on its short-term line of credit to fund the first KK&A installment.
- Operational Risks: Internal growth was impacted by the earlier-than-expected conclusion of several major engagements and the postponement of others during the second quarter.
- Legal Proceedings: No material legal proceedings were reported.
Investor Verification Checklist
- Verify the integration progress and revenue contribution of the Klick, Kent & Allen, Inc. (KK&A) acquisition.
- Monitor the company's ability to service the new $10 million debt obligation and contingent profit payments.
- Assess the impact of postponed major engagements on future revenue stability.
- Review the amortization schedule for the $9.8 million goodwill recorded from the KK&A acquisition.
- Confirm the utilization of the short-term line of credit and its effect on liquidity ratios.