FTI Consulting Inc.’s (FCN) first-quarter operating earnings of 67 cents per share were substantially ahead of the Zacks Consensus Estimate of 61 cents and the year-ago performance of 60 cents. Operating net income increased 1.9% year-over-year to $32.3 million.
Operating earnings in the reported quarter excluded after-tax net special charges that were recorded to eliminate redundancies resulting from acquisitions completed over the last two years to provide for appropriate levels of administrative support and to better align capacity with expected demand.
However, no such special charges were recorded in the year-ago quarter. Including the charges, GAAP net income decreased 55.2% year-over-year to $14.2 million or 29 cents per share. Non-GAAP EBITDA was $75.9 million or 21.7% of revenues, compared to $74.0 million or 21.3% of revenues in the prior-year quarter.
Results reflected flattish growth in expense, excluding one-time charges, substantial growth from economic consulting and strong restructuring activities coupled with improvement in litigation-driven activities drove M&A transactions. However, declining revenues from Corporate Finance and Technology segments hampered growth.
FTI Consulting’s total revenue increased 0.6% year-over-year to $350.0 million. Total revenue-generating headcount increased to 2,585 from 2,517 in the year-ago period. Quarterly revenue by business segments are as follows:
Corporate Finance/Restructuring revenues decreased 7.8% to $117.5 million from $127.5 million in the prior-year quarter due to the sluggishness in new restructuring opportunities in the U.S., which also led to lower volumes in new cases. Although average billable rates witnessed growth, utilization rates continued to decline steadily.
Forensic and Litigation Consulting revenues increased 0.4% to $78.7 million, compared to $78.4 million in the prior-year period. While construction solutions and international investigations practices reflected growth, these were offset by declines in the unprecedented financial fraud cases that cropped up last year and continue to soften growth.
Technology revenues decreased 2.0% to $43.4 million, compared to $44.3 million in the prior-year quarter. The decline was primarily attributed to soft demand related to complex litigation and regulatory investigations and challenged pricing for certain aspects of the segment.
Economic Consulting revenues increased 22.8% to a record $67.3 million from $54.8 million in the prior year period. Offices in New York, the West Coast and London and continued improving activity in strategic M&A and financial dispute matters drove consistent growth during the quarter. The company opened 25% more cases compared with the year-ago period.
Strategic Communications revenues decreased 0.9% to $43.2 million, compared to $42.8 million in the prior-year quarter. In addition, the segment continued to be challenged by the sluggish volume of M&A transactions along with the constant impact of the global recession causing fee pressures from retained clients.
Financials
At the end of Mar 31, 2010, FTI Consulting’s operating cash outflow was $27.3 million compared to $9.8 million used in the prior quarter. This was primarily driven by lower net income and weak receivable collections. As a result, cash and equivalents totaled $80.8 million as of Mar 31, 2010, compared to $118.9 million as of Dec 31, 2009. Total diluted weighted shares outstanding decreased to 48.1 million compared to 53.0 million shares.
The performance of the Corporate Finance and Restructuring segment is in line with the projection of the decelerating trend through the remainder of 2010. Furthermore, any significant growth was restricted by declining revenues from the Technology and Strategic Communication segments. We believe there is a dearth of significant growth drivers to pull the operating leverage in the near term.
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