FTI Consulting, Inc. — Q1 2024 Form 10-Q
Business context and period: Global business advisory firm reporting for the three months ended March 31, 2024, compared with Q1 2023. Its five segments are Corporate Finance, Forensic and Litigation Consulting (FLC), Economic Consulting, Technology and Strategic Communications. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $928.6 million | $806.7 million | +15.1% |
| Operating income | $99.6 million | $66.8 million | +49.1% |
| Operating margin | 10.7% | 8.3% | +2.4 percentage points |
| Net income | $80.0 million | $47.5 million | +68.2% |
| Diluted EPS | $2.23 | $1.34 | +$0.89 |
| Adjusted EBITDA | $111.1 million | $78.4 million | +41.6% |
| Adjusted EBITDA margin | 12.0% | 9.7% | +2.3 percentage points |
| Net cash used in operating activities | $274.8 million | $254.2 million | Outflow increased $20.6 million |
| Free cash flow | $(279.5) million | $(272.2) million | Outflow increased $7.2 million |
Adjusted EBITDA and free cash flow are non-GAAP measures. Reported EPS equaled adjusted EPS in both periods. The effective tax rate fell to 19.6% from 24.0%, benefiting from share-based compensation tax benefits and lower foreign taxes.
Segments
- Corporate Finance: Revenue $366.0 million (+16.0%); Adjusted Segment EBITDA $75.2 million versus $51.8 million. Growth reflected demand and higher realized rates, with utilization up to 62% from 59%.
- FLC: Revenue $176.1 million (+11.6%); Adjusted Segment EBITDA $33.7 million versus $21.8 million. Demand and rates improved; utilization rose to 59% from 57%.
- Economic Consulting: Revenue $204.5 million (+20.6%); Adjusted Segment EBITDA was essentially flat at $14.2 million. Higher compensation and bad debt expense weighed on profitability.
- Technology: Revenue $100.7 million (+11.1%); Adjusted Segment EBITDA declined to $14.6 million from $15.4 million. Margin pressure reflected lower profitability in consulting and data transformation and production services.
- Strategic Communications: Revenue $81.2 million (+11.1%); Adjusted Segment EBITDA rose to $12.4 million from $9.6 million, with growth driven by public affairs and corporate reputation services.
Financial position, liquidity and material changes
- Cash and cash equivalents were $244.0 million at March 31, 2024, down from $303.2 million at year-end 2023. Net receivables were $1.157 billion; days sales outstanding increased to 105 from 102 a year earlier.
- Debt was $205.0 million, all under the revolving credit facility, versus no debt at December 31, 2023. The facility has a $900 million limit, with $695 million available at quarter-end and maturity in November 2027. The company reported compliance with its covenants.
- Operating cash outflow reflected annual bonus payments, salaries and increased forgivable loan issuances, partly offset by higher collections. The company said first-quarter cash needs typically rise because of annual incentive compensation.
- Receivables increased from $1.102 billion at year-end 2023; the allowance for expected credit losses was $69.8 million, compared with $64.7 million. The quarterly provision for expected credit losses rose to $11.4 million from $7.0 million.
- Financing cash flow was $198.6 million, primarily reflecting $280 million of revolver borrowings and $75 million of repayments. No shares were repurchased under the repurchase program in the quarter; $460.7 million remained authorized.
- Headcount was 8,055, up 65 from year-end 2023. Management cited a 5.0% increase in non-billable headcount year over year as one contributor to higher compensation costs.
Outlook, risks and other items
- No specific revenue or earnings guidance is provided in the filing. Management expects operating cash flows, supplemented by the credit facility as needed, to fund requirements for at least the next 12 months.
- Expected capital expenditures for the remainder of 2024 are $28–$34 million. Management notes this estimate excludes potential acquisitions and certain future client-engagement needs.
- Management cited broad demand growth and higher realized bill rates as drivers of results, alongside higher compensation, SG&A, bad debt expense and legal services costs. Corporate costs also rose, including investment in artificial intelligence.
- Risks identified include demand fluctuations, recruiting and retention, utilization and billing rates, collection and credit risk, competition, economic and market conditions, foreign exchange, cybersecurity and technology risks including AI adoption, and the ability to execute acquisitions. The filing reports no material change to previously disclosed risk factors.
- The company reported no known legal proceedings or claims expected to have a material adverse effect. Disclosure controls were assessed as effective, with no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether higher DSO and receivables growth lead to slower collections or further credit-loss provisions.
- Whether strong revenue growth converts to sustained earnings and margin improvement, particularly in Economic Consulting and Technology.
- Cash generation after the seasonal first-quarter compensation outflow, and the level and cost of future revolver borrowings.
- Whether planned capital expenditures, headcount and AI investment remain within expectations.
- That segment comparisons use recast prior-period classifications for Corporate Finance and FLC, and that Adjusted EBITDA and free cash flow are non-GAAP measures.