FTI Consulting, Inc. — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing, not a standalone fourth-quarter report; selected Q4 results are included below. FTI Consulting is a global business advisory firm operating in Corporate Finance & Restructuring, Forensic and Litigation Consulting (FLC), Economic Consulting, Technology, and Strategic Communications.
Financial performance
Amounts are in millions of U.S. dollars, except per-share data and percentages.
| Metric | FY 2020 | FY 2019 | Change |
|---|---|---|---|
| Revenue | $2,461.3 | $2,352.7 | +4.6% |
| Operating income | $282.7 | $305.6 | -7.5% |
| Net income | $210.7 | $216.7 | -2.8% |
| Diluted EPS | $5.67 | $5.69 | -0.4% |
| Adjusted EBITDA | $332.3 | $343.9 | -3.4% |
| Adjusted EBITDA margin | 13.5% | 14.6% | -1.1 percentage points |
| Operating cash flow | $327.1 | $217.9 | +50.1% |
| Free cash flow | $292.2 | $175.8 | +66.2% |
Revenue growth excluding acquisition-related revenue was 2.9%. Higher compensation costs, including those associated with a 14.5% increase in billable professionals, weighed on earnings. The effective tax rate declined to 19.7% from 24.9%, aided by foreign tax credits, an intellectual-property license agreement between subsidiaries, and a favorable share-based compensation adjustment. Adjusted EBITDA and free cash flow are non-GAAP measures.
Segment results
| Segment | 2020 revenue | Revenue change | 2020 Adjusted Segment EBITDA | EBITDA change |
|---|---|---|---|---|
| Corporate Finance & Restructuring | $910.2 million | +25.8% | $216.8 million | +34.9% |
| FLC | $500.3 million | -13.4% | $33.4 million | -68.0% |
| Economic Consulting | $599.1 million | +1.1% | $91.4 million | +8.7% |
| Technology | $223.0 million | +3.4% | $43.0 million | -5.9% |
| Strategic Communications | $228.7 million | -5.9% | $39.0 million | -12.5% |
Corporate Finance benefited from restructuring demand and the Delta Partners acquisition. FLC was particularly affected by pandemic-related delays and lower demand in disputes, investigations, and health solutions. Economic Consulting’s higher antitrust-related demand was partly offset by weaker financial economics demand.
Cash, debt and liquidity
- Cash and cash equivalents were $295.0 million at year-end, down from $369.4 million. Working capital was $459.5 million, versus $566.1 million.
- Long-term debt, net, was $286.1 million. The company had $316.25 million principal amount of 2.0% convertible notes due August 2023; the notes’ reported carrying value reflects discount and issuance costs.
- No borrowings were outstanding under the $550 million revolving credit facility; available borrowing capacity was $548.9 million after letters of credit. The company reported covenant compliance at year-end.
- DSO improved to 95 days from 97 days. Capital expenditures were $34.9 million in 2020.
- Financing cash outflow rose to $360.1 million, primarily reflecting $353.4 million of share repurchases. Approximately 3.3 million shares were repurchased at an average $108.11 per share; $213.2 million remained authorized at year-end.
Fourth-quarter results
Q4 2020 revenue was $626.6 million, operating income $70.9 million, net income $55.6 million, and diluted EPS $1.57. In Q4 2019, the corresponding figures were $602.2 million, $48.2 million, $29.1 million, and $0.76.
Material changes, outlook and commentary
- COVID-19 disrupted client work through remote-work and travel constraints, reduced billable travel expenses, and delays or moratoriums affecting legal, regulatory, and investigative proceedings. Impacts varied by segment. Restructuring demand rose during the year, then eased in the second half amid stimulus and other financing availability.
- Management said the pandemic’s future effects were difficult to predict. The filing does not provide a clear full-year 2021 revenue or earnings guidance figure.
- Management expected 2021 capital expenditures of $70 million to $80 million, including improvements for the new New York office. It stated that operating cash flows and available resources were expected to fund needs for at least the next 12 months, subject to pandemic impacts, acquisitions, staffing changes, and other unforeseen demands.
- A new New York office lease has a 15-year initial term, with two five-year renewal options. Fixed rents are expected to total approximately $145 million over the initial term, with payments scheduled to begin in April 2022. The lease was not yet recognized on the year-end balance sheet because the company had not obtained the right to use the premises.
Risks, contingencies and unusual items
- Key risks include prolonged COVID-19 effects, uneven demand across practices, utilization and staffing management, client cancellations or fee reductions, collection risk, professional retention, competition and technology change, cybersecurity and confidential-data protection, and international and foreign-exchange exposure.
- The $7.1 million special charge comprised $4.7 million of New York office abandonment and relocation costs, including $4.4 million of non-cash accelerated charges, and $2.4 million of FLC severance and related costs affecting 16 employees.
- Accounts receivable included a $38.4 million allowance for expected credit losses; 2020 write-offs were $24.7 million versus $12.7 million in 2019. Fee estimates subject to bankruptcy court, regulator, or client approval were identified by the auditor as a critical audit matter.
- Goodwill was $1.235 billion. Management reported no material legal proceeding known to it and no off-balance-sheet arrangements expected to materially affect financial condition or results.
- The company’s financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective as of December 31, 2020.
Most important facts for investors to verify
- Whether Corporate Finance restructuring growth is sustainable as pandemic support and financing conditions change, and whether FLC utilization and profitability recover.
- Whether higher headcount and compensation costs can be absorbed without continued margin pressure; adjusted EBITDA margin declined to 13.5%.
- Cash conversion, receivables quality, fee-reduction estimates, write-offs, and the improvement in operating cash flow and DSO.
- The capital-allocation trade-off between substantial repurchases, acquisition spending, upcoming office-lease commitments, and debt maturity/conversion terms.
- Actual 2021 capital expenditures and the timing and full cost of the New York lease, alongside any updated business outlook or material pandemic-related developments.