FTI Consulting, Inc. (Forensic Technologies International Corp.) 10-Q Summary
Business Context and Reporting Period
This filing is a Quarterly Report (Form 10-QSB) for the period ended September 30, 1997. The registrant, Forensic Technologies International Corporation (now FTI Consulting), provides forensic, engineering, and consulting services. The company completed two significant acquisitions effective September 1, 1997: LWG, Inc. (claims management) and assets of Bodaken & Associates (trial research).
Key Financial Metrics
| Metric | Q3 1997 | Q3 1996 | 9 Months 1997 | 9 Months 1996 |
|---|---|---|---|---|
| Revenues | $10.7M | $7.6M | $29.7M | $22.5M |
| Net Income | $0.97M | $0.49M | $2.32M | $1.44M |
| Diluted EPS | $0.20 | $0.10 | $0.49 | $0.37 |
| Direct Cost Margin | 50.0% | 55.1% | 53.1% | 54.7% |
| Cash Flow from Operations | N/A | N/A | $2.57M | ($1.16M) |
| Cash & Equivalents (End) | $2.9M | $5.9M | $2.9M | $6.9M |
| Total Debt (Current + Long-term) | $3.2M | $0.2M | $3.2M | $0.2M |
Note: Debt increased significantly due to installment payments for the Bodaken & Associates acquisition.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 41.0% in Q3 and 31.7% for the nine-month period compared to 1996. Organic growth was 20% in Q3, with acquisitions contributing approximately $1.7 million.
- Profitability: Net income doubled in Q3 (from $0.49M to $0.97M) and increased 61% for the nine-month period. Direct costs as a percentage of revenue improved to 50% in Q3 and 53% for the nine months.
- Cash Position: Cash and cash equivalents decreased from $5.9M to $2.9M. This decline was driven by $5.6M in investing activities, primarily $3.7M in cash paid for acquisitions and $1.8M for property and equipment.
- Debt Structure: Long-term debt and current portions of debt increased from $0.2M to $3.2M, reflecting the financing of the Bodaken acquisition ($1.2M and $0.65M deferred payments).
Outlook, Risks, and Management Commentary
- Acquisition Impact: Management attributes revenue growth to the inclusion of LWG and Bodaken, alongside organic growth in visual communication services due to higher trial activity.
- Capital Allocation: The company utilized remaining proceeds from a May 1996 stock offering (approx. $5.3M balance) to fund acquisitions and working capital. No line of credit was utilized in 1997, reducing interest expense.
- Future Contingencies: The LWG acquisition includes an earn-out provision for 50% of pre-tax profits for four years, which will increase goodwill when determinable. Goodwill from acquisitions is being amortized over 20 to 25 years.
- Forward-Looking Statement: Management notes that operating results for the nine-month period are not necessarily indicative of full-year results.
Investor Verification Checklist
- Verify the integration progress and revenue contribution of the LWG and Bodaken acquisitions post-closing.
- Confirm the status of the LWG earn-out payments and their impact on future goodwill amortization.
- Monitor the repayment schedule for the Bodaken acquisition debt (7% interest on unpaid balance).
- Assess the sustainability of the improved direct cost margins (50-53%) as the company scales.
- Review the utilization of the remaining $5.3M cash balance from the 1996 stock offering for future liquidity needs.