FTI Consulting, Inc. - Q3 2007 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended September 30, 2007. FTI Consulting, Inc. is a global consulting firm providing services in forensic/litigation, corporate finance/restructuring, economic consulting, technology, and strategic/financial communications. The company operates through five reportable segments and has expanded its footprint through acquisitions, most notably FD International (Holdings) Limited in late 2006.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2007 | Nine Months Ended Sep 30, 2007 | Nine Months Ended Sep 30, 2006 |
|---|---|---|---|
| Revenues | $253.3 million | $720.8 million | $491.1 million |
| Net Income | $23.0 million | $61.3 million | $24.7 million |
| Diluted EPS | $0.50 | $1.39 | $0.61 |
| Operating Income | $48.9 million | $131.0 million | $61.4 million |
| Cash and Equivalents | $62.2 million (Sep 30, 2007) | Decreased from $91.9 million (Dec 31, 2006) | |
| Total Debt | $579.9 million (Sep 30, 2007) | Includes $150.0 million convertible notes | |
| Operating Cash Flow | $21.4 million (Nine months 2007) vs. $(30.9) million (Nine months 2006) |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 56.3% year-over-year for the quarter and 46.8% for the nine-month period. Growth was driven by the inclusion of the Strategic and Financial Communications segment (FD acquisition) and organic growth in other segments.
- Profitability: Net income surged from a loss of $0.3 million in Q3 2006 to $23.0 million in Q3 2007. The nine-month net income more than doubled to $61.3 million.
- Special Charges: The prior year (2006) included $23.0 million in special charges related to workforce reductions and intangible impairments. No such charges were recorded in 2007.
- Effective Tax Rate: The effective tax rate decreased to 38.8% for the nine months ended September 30, 2007, from 46.0% in the prior year, due to tax planning strategies and reduced state taxes.
- Headcount: Revenue-generating professionals increased by 55.7% to 1,809, largely due to acquisitions and hiring in the Technology and Corporate Finance practices.
Guidance, Outlook, and Risks
- Capital Resources: The company anticipates capital expenditures of $35.0 million to $40.0 million for the remainder of 2007. Management believes existing cash, credit facilities, and recent equity proceeds are sufficient for the next 12 months.
- Subsequent Event - Equity Offering: In October 2007, the company completed a public offering of 4.83 million shares at $50.00 per share, raising net proceeds of $231.8 million for general corporate purposes and acquisitions.
- Convertible Notes: On October 15, 2007, $150.0 million of 3 3/4% convertible senior subordinated notes became convertible at the option of holders due to stock price thresholds. These will be reclassified as current liabilities in Q4 2007.
- Risk Factors:
- Accounting Changes: A proposed FASB Staff Position regarding convertible debt could increase reported interest expense by approximately $4.0 million in 2007 if adopted.
- Acquisition Integration: Risks associated with integrating recent acquisitions, particularly in the technology sector, which may not be accretive in the near term.
- Market Conditions: Fluctuations in demand for services, competition, and the ability to retain qualified professionals.
Investor Verification Checklist
- Verify the impact of the October 2007 equity offering ($231.8M proceeds) on the balance sheet in the Q4 2007 filing.
- Monitor the conversion status of the $150.0 million convertible notes and the resulting cash or share settlement impact.
- Review the integration progress and profitability of the FD International (Strategic and Financial Communications) segment.
- Assess the potential impact of the proposed FASB Staff Position on convertible debt accounting on future interest expense and earnings.
- Confirm the utilization rates and billing rates across segments to ensure revenue growth is sustainable without excessive cost increases.