FTI Consulting, Inc. Q1 2009 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2009. FTI Consulting, Inc. is a global business advisory firm operating in five segments: Corporate Finance/Restructuring, Forensic and Litigation Consulting, Strategic Communications, Technology, and Economic Consulting. The company reported a 13.3% year-over-year revenue increase, driven primarily by strong performance in restructuring activities and contributions from acquisitions completed in 2008.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Revenues | $347.8 million | $307.1 million |
| Operating Income | $60.6 million | $59.1 million |
| Net Income | $31.7 million | $30.7 million |
| Diluted EPS | $0.60 | $0.58 |
| EBITDA | $74.0 million | $68.0 million |
| Cash and Equivalents | $157.7 million | $191.8 million (Dec 31, 2008) |
| Total Debt | $563.5 million | $549.9 million (Dec 31, 2008) |
| Operating Cash Flow | ($8.5 million) used | ($10.1 million) used |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased by $40.7 million (13.3%). Organic growth was 2%, with the remainder attributed to acquisitions. Excluding foreign currency headwinds, organic growth was estimated at 6%.
- Segment Performance:
- Corporate Finance/Restructuring: Revenues surged 60.9% to $127.5 million, driven by high demand for restructuring services due to the global credit crisis.
- Forensic and Litigation: Revenues increased 10.9% to $66.9 million, aided by large financial fraud investigations.
- Strategic Communications: Revenues declined 21.7% to $42.8 million due to reduced M&A activity and foreign currency translation impacts.
- Technology: Revenues were flat at $55.8 million, with a shift toward consulting services offsetting declines in unit-based software revenue.
- Economic Consulting: Revenues declined 2.8% to $54.8 million due to lower strategic M&A activity.
- Accounting Change: The company adopted FASB Staff Position No. APB 14-1 on January 1, 2009, requiring retrospective adjustment of convertible debt instruments. This increased interest expense and reduced net income for prior periods.
- Headcount: Total employees increased 18.5% to 3,353, reflecting hiring to support business growth and retention of acquired staff.
Outlook, Risks, and Management Commentary
- Liquidity: As of March 31, 2009, the company held $157.7 million in cash and had $165.8 million available under its revolving credit facility. Management believes these resources are sufficient for the next 12 months.
- Convertible Notes: $150 million in Convertible Senior Subordinated Notes due 2012 are currently convertible at the option of holders through July 15, 2009. The conversion value exceeds the principal amount by approximately $79.2 million based on the March 31 stock price. Management does not anticipate significant conversions unless the value ratio changes.
- Capital Expenditures: Estimated at $40.0 million to $43.0 million for 2009.
- Risks: Key risks include the ability to attract and retain professionals, conflicts of interest, integration of acquisitions, foreign currency fluctuations, and general economic conditions affecting capital markets and litigation activity.
Investor Verification Checklist
- Verify the sustainability of the 60.9% revenue growth in the Corporate Finance/Restructuring segment given the cyclical nature of the credit crisis.
- Monitor the potential cash outflow or dilution associated with the $150 million Convertible Notes, which are currently in-the-money and convertible.
- Assess the impact of foreign currency translation on the Strategic Communications segment, which reported a significant decline.
- Review the provision for doubtful accounts, which increased to $6.8 million in Q1 2009 compared to $4.5 million in Q1 2008.
- Confirm the company's ability to maintain utilization rates and billing rates as the economic environment evolves.