FTI Consulting, Inc. Q1 2008 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2008. FTI Consulting, Inc. is a global consulting firm operating through five segments: Technology, Corporate Finance/Restructuring, Economic Consulting, Strategic Communications, and Forensic and Litigation Consulting. The company reported strong organic growth driven by market demand for restructuring services due to the global credit crisis and increased litigation support needs.
Key Financial Metrics
| Metric | Q1 2008 | Q1 2007 |
|---|---|---|
| Revenues | $307.1 million | $227.7 million |
| Operating Income | $59.1 million | $38.4 million |
| Net Income | $31.3 million | $15.3 million |
| Diluted EPS | $0.59 | $0.36 |
| EBITDA | $68.0 million | $44.4 million |
| Cash and Equivalents | $227.1 million | $360.5 million (Dec 31, 2007) |
| Total Debt (Current + Long-term) | $569.5 million | $573.4 million (Dec 31, 2007) |
| Operating Cash Flow | ($10.1 million) used | ($30.0 million) used |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 34.9% year-over-year, driven by 29% organic growth and approximately $13.0 million from acquisitions. The Technology segment saw the most rapid growth (71.1%) due to a large pharmaceutical product liability case.
- Profitability: Operating income rose 53.7% to $59.1 million. Net income more than doubled to $31.3 million. The effective tax rate decreased to 39.6% from 44.0% due to tax planning strategies and reduced state taxes.
- Acquisition Activity: The quarter was the most active in company history, with seven acquisitions completed for a total cost of $72.0 million ($59.0 million cash and $13.0 million stock). This expanded capabilities in real estate, construction, and international markets (UK, Brazil, China).
- Cash Flow: Net cash used in operating activities improved significantly to $10.1 million from $30.0 million in the prior year, primarily due to reduced funding of forgivable employee loans. However, investing activities consumed $128.5 million, largely due to acquisition payments and a $26.8 million advance for an acquisition closing in April 2008.
Outlook, Risks, and Contingencies
- Liquidity: The company maintains $227.1 million in cash and $140.8 million in availability under its senior secured bank credit facility. Management believes these resources are sufficient for the next 12 months.
- Convertible Notes: $150 million of 3 3/4% convertible senior subordinated notes due 2012 are currently convertible at the option of holders through July 15, 2008, as the stock price exceeded the threshold. The company retains the option to settle conversion premiums in cash or stock.
- Equity Price Sensitivity: The company has granted contractual price protection to sellers of two acquired companies. If the stock price falls below specific thresholds ($56.66 and $64.04) upon the lapse of restrictions, FTI must make additional cash payments. As of March 31, 2008, no payments were required.
- Risks: Key risks include the ability to retain qualified professionals, integration of acquisitions, volatility in capital markets, and general economic conditions affecting demand for restructuring and M&A advisory services.
Investor Verification Checklist
- Verify the sustainability of the 29% organic revenue growth rate, particularly the impact of the large pharmaceutical case in the Technology segment.
- Monitor the conversion status of the $150 million convertible notes and the potential cash outflow or dilution if holders exercise conversion rights.
- Assess the integration progress and financial performance of the seven acquisitions completed in Q1 2008.
- Review the company's ability to maintain liquidity given the significant cash outflow for acquisitions ($128.5 million in investing activities) and the potential for additional M&A activity.
- Confirm the status of the $26.8 million advance payment for the acquisition closing in April 2008 and its impact on future cash balances.