FTI Consulting, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. FTI Consulting is a global business advisory firm operating through Corporate Finance, Forensic and Litigation Consulting (FLC), Economic Consulting, Technology and Strategic Communications.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $686.3 million | $604.6 million | +13.5% |
| Operating income | $88.5 million | $73.1 million | +21.2% |
| Net income | $64.5 million | $56.7 million | +13.7% |
| Diluted EPS | $1.84 | $1.49 | +$0.35 |
| Adjusted EBITDA | $99.5 million | $83.2 million | +19.5% |
| Adjusted EBITDA margin | 14.5% | 13.8% | +0.7 percentage points |
| Operating cash flow | $(166.6) million | $(123.6) million | Greater cash use |
| Free cash flow | $(174.6) million | $(131.8) million | Greater cash use |
Revenue growth included an estimated 2.4% positive foreign-exchange effect and $16.0 million of acquisition-related revenue. Excluding those items, revenue increased 8.4%, primarily on demand in Economic Consulting and Technology, partly offset by lower pass-through revenue. The effective tax rate was 23.9%, versus 22.5%.
Segment results
| Segment | Revenue | Year-over-year | Adjusted Segment EBITDA | Key trend |
|---|---|---|---|---|
| Corporate Finance | $226.2 million | +8.9% | $37.4 million, down from $48.9 million | Lower utilization and North American restructuring demand weighed on profitability. |
| FLC | $150.8 million | +2.2% | $29.4 million, up from $21.2 million | Improved utilization and lower pass-through mix supported margins. |
| Economic Consulting | $169.3 million | +28.1% | $26.6 million, up from $12.7 million | Demand, utilization and realized rates improved. |
| Technology | $79.5 million | +35.3% | $21.6 million, up from $14.5 million | Growth in managed review, hosting and consulting, including M&A-related engagements. |
| Strategic Communications | $60.5 million | +3.7% | $10.4 million, up from $8.8 million | Project-based and public affairs demand improved; margin was slightly lower. |
Cash, liquidity and debt
- Cash and cash equivalents were $233.4 million at March 31, down from $295.0 million at year-end 2020.
- Operating cash use rose to $166.6 million, principally reflecting annual bonus payments and higher salaries from headcount growth; higher collections partly offset the outflow. DSO improved to 97 days from 104 days a year earlier.
- Capital resources included $378.9 million of available capacity on the $550 million revolving credit facility, alongside $170.0 million outstanding under that facility. Total debt principal was $486.3 million, comprising $316.3 million of 2.0% convertible notes due August 2023 and $170.0 million of revolver borrowings. The company reported compliance with debt covenants.
- Q1 financing cash flow included $170.0 million of net revolver borrowings and $46.1 million of share repurchases.
Material changes, outlook and risks
- Company-wide revenue, net income and Adjusted EBITDA increased, but performance varied by segment; Corporate Finance’s Adjusted Segment EBITDA fell materially despite higher reported revenue.
- Management said first-quarter operating cash needs typically exceed operating cash flow because of annual incentive compensation, with cash generation generally improving after Q2. It expects $62–$72 million of capital expenditures for the remainder of 2021, including improvements for its new New York principal office. No formal earnings or revenue guidance is provided in the supplied filing text.
- The New York office lease was not yet on the balance sheet at quarter-end because the company did not have the right to use the premises until April 1, 2021. The 15-year lease’s fixed rent is expected to aggregate approximately $145 million, excluding incentives, with payments scheduled to begin in April 2022.
- COVID-19 continued to affect service delivery through travel restrictions, court closures and government moratoriums; the duration and business impact remained uncertain. Other cited risks include demand variability, utilization and staffing, contingent-fee timing, receivable collection, FX, cybersecurity, and the transition away from LIBOR.
- The company entered a definitive agreement to acquire certain assets of The Rhodes Group, with closing expected in Q2 2021. Management reported no known legal proceedings expected to materially affect financial condition or results.
Important facts for investors to verify
- Whether strong Economic Consulting and Technology demand persists, and whether Corporate Finance utilization and profitability recover.
- Cash conversion after the seasonal Q1 compensation outflow, including collections, receivables and DSO trends.
- Revolver usage, debt covenant headroom, and the terms and funding implications of the 2023 convertible notes.
- Progress and total costs of the Rhodes Group acquisition, 2021 capital spending, and the New York office lease commitments.
- Continuing COVID-19 effects and other disclosed operational risks; the filing states that previously reported risk factors had no material changes.