Company Overview: FTI Consulting, Inc. is a business advisory company. The Company operates through five segments: Corporate Finance & Restructuring, Forensic and Litigation Consulting, Economic Consulting, Technology and Strategic Communications. The Company provides advice and services, such as restructuring (including bankruptcy), capital formation and indebtedness, interim business management, performance improvements, forensic accounting and litigation matters, international arbitrations, mergers and acquisitions (M&A), antitrust and competition matters, securities litigation, electronic discovery (or e-discovery), management and retrieval of electronically stored information (ESI), reputation management and strategic communications. The Company collaborates with Chief Financial Officers (CFOs) and their finance and accounting organizations and uses engagement tools to provide transformation services, manage risk, deliver business intelligence capabilities, and prepare for and execute events.
 

FCN Details
 
Strong Segment Performances Led to Margin Expansion:  FTI Consulting, Inc. (NYSE: FCN) is a global business advisory firm committed to facilitate organizations in managing change, alleviate risk and resolve disputes through its advisory services of financial, legal, operational, political and regulatory, reputational and transactional. Each segment of the business is operated with a specialized team to assist clients across the business cycle, from positive risk management to rapid response to unexpected events and active environments. The business works closely with the clients and helps them foresee, illustrate and overcome complex business challenges and make the most of opportunities arising from the economy, financial and credit markets, governmental legislation and regulation, and litigation. The company offers services to the clients with expert advice and solutions involving turnaround and restructuring (including bankruptcy), business transformations (including performance improvement), interim management, transactions (including mergers and acquisitions (“M&A”), forensic accounting and advisory services, global risk & investigations, antitrust. The business has operations across the globe which consists of 48 offices in the U.S, 16 offices located across Asia and the Pacific region and 26 offices located across the Middle East and Africa (EMEA). 

The business competes with the range of its services, quality of the work, fame of the professionals, geographic reach, and reputation and performance record.  The company’s specific industry expertise along with strong client relationships results in a combination of long-standing competitive strength.

Looking at the historical performance over the period of FY15-FY19, the company’s total revenue improved from $1,779.149 million in FY15 to $2,352.717 million in FY19, posting a CAGR of 7.2%. Net income grew from $66.053 million to $216.726 million in FY19, witnessing a robust CAGR of 34.9% over the same period. 

The business model is characterized by consistent cash flows which support business operations, capital expenditures and the ability to service the indebtedness and pursue the growth and other strategies. The company intends to maintain and strengthen its core practices and competencies. Going forward, the company believes that the recognized expertise, client relationships and the goodwill, coupled with its successful track record, size and geographic diversity, are the most critical elements which would drive operational growth in the everchanging corporate environment.


Five-year Income Statement highlights (Source: Company Reports)

Operating Segments: Collectively, FCN offers a comprehensive suite of services designed to assist clients across the business cycle, from proactive risk management to rapid response to unexpected events and dynamic environments. As per the operations, the business has five reportable segments: (i) Corporate Finance & Restructuring; (ii) Forensic and Litigation Consulting, (iii) Economic Consulting, (iv) Technology and (v) Strategic Communications.

FY19 Business Highlights for the Period ended 31 December 2019: FCN declared its full-year results, wherein the company reported revenues of $2.353 billion, up 16% on y-o-y basis aided by higher demand across all business segments. Direct expense in terms of revenue stood at 65.24% in FY19, improved marginally from 65.49% in FY18. The company reported a net income of $216.7 million, as compared to $150.6 million in FY18 majorly driven by higher operating profits across all business segments, lower interest expense and a lower effective tax rate. In FY18, the company sold its Ringtail e-discovery software and related business at $13 million, which was included in the previous year's net income. The company posted its adjusted EBITDA of $343.9 million, as compared to the $265.7 million in the previous financial year. Adjusted EBITDA margin stood higher at 14.6% as compared to 13.1% in FY18. During the quarter, the business reported higher revenues across all business segments, which was partially offset by increased compensation related to an increase in variable compensation and a 17.8% increase in billable headcount. The company’s selling, general and administrative expenses (SG&A) stood at $504.07 million, as compared to $465.636 million in FY18. SG&A, in terms of revenue, stood at 21.43%, improved from 22.96% in FY18. The business reported adjusted EPS of $5.80 in FY19 against $4.00 in FY18, driven by improved operating results, lower interest expense and a lower effective tax rate.


Key Income Statement Highlights (Source: Company Reports)

Q4FY19 Business Highlights for the Period Ended 31 December 2019: FCN announced its quarterly results, wherein the company reported a revenue of $602.2 million, up 19.3% on y-o-y basis. The quarter was marked by revenue growth across all the segments while corporate finance & restructuring and technology segments reported a robust growth of 25.1% and 23.5% respectively on a y-o-y basis. Adjusted EBITDA stood at $58.3 million, up 8.6% from the previous corresponding period. However, adjusted EBITDA margin at 9.7% was lower than 10.6% in Q4FY18, primarily on account of the lower adjusted EBITDA Margin from forensic and litigation consulting and strategic communications of 11.6% and 14.9%, as compared to 16.3% and 19.5%, respectively in Q4FY18. The business reported its net income of $29.06 million, depicting a growth of 22.5%, majorly driven by higher operating profits from the Economic Consulting and Technology segments. 


Q4FY19 Business Highlights (Source: Company Reports)

Balance-Sheet Update as on 31^st December 2019: The company reported its current assets of $1,178.66 million, improved from $965.35 million as on FY18. The company’s reported a higher cash balance of $369.37 million from $258.47 million on 30^th September 2019 while the business reported lower accounts receivables of $693.37 million from $739.46 million in Q3FY19. The company exited the year with total debt of $316.25 million, with no change from the previous quarter. The company’s net assets stood at $1,489.14 million as on 31^st December 2019.


Key Balance sheet Highlights (Source: Company Reports)
 
Headcount: The company reported its total headcount stood at 5,567 as of December 31, 2019, up from 4,768 in FY18. The company’s billable headcount stood at 4,424, representing a growth of 17.8% from FY18. Corporate Finance segment reported a growth of 25.9% in its billable head count, while Technology and FLC segments reported a y-o-y increase of 18% and 17.2%, respectively.

Snapshot of Company’s Headcount (Source: Company Reports)

Recent Updates: In FY19, the company repurchased 1,258,420 shares of its common stock at an average price per share of $84.16 for a total cost of $105.9 million. The Board of Directors repurchased shares worth $100.0 million under the stock repurchase program for an aggregate authorization of $500.0 million.

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together forms around 54.97% of the total shareholding. BlackRock Institutional Trust Company, N.A. and The Vanguard Group, Inc. hold the maximum interests in the company at 10.72% and 10.49%, respectively.
 

Top 10 Shareholders (Source: Thomson Reuters)

Key Metrics: The Company reported strong numbers in FY19, wherein FCN posted gross margin at 34.8%, higher than 34.5% in FY18. EBITDA margin for FY19 also stood higher at 14.3% from 13.1% in FY18. Operating margin improved further to 13% from 11.3% in FY18 and stood higher than the industry median of 7.8%. Net margin stood at 9.2% as compared to the industry median of 4.5%. On similar lines, return on equity also stood higher at 15.3% as compared to 11.1% of the Industry Median.


Key Metrics (Source: Thomson Reuters)


Key Valuation Metrics (Source: Thomson Reuters)

Outlook: As per the FY20 guidance, the business estimates its full-year revenue to come within the range of $2.450 billion to $2.550 billion. The business forecasts its FY20 EPS to be in the range of $5.32 and $5.82. FCN’s adjusted FY20 EPS is anticipated within the range of $5.50 and $6.00, which includes an estimated non-cash interest expense of $0.18 per share related to the FCN’s Convertible Notes.
 
Valuation Methodology: Price to Earnings Based Valuation  

Price to Earnings Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of FCN closed at $115.4 with a market capitalization of $4.34 billion. The stock made a 52-week low and high of $67.85 and $130.01 and is currently trading at the upper band of its 52-week trading range. The stock has delivered positive returns of 4.89% and 8.39% in the last three months and six-months, respectively. The company strategizes to grow organically through higher headcount while improving its market share to provide clients an attractive and evolving suite of services across the segments, as well as the industries and geographic regions in which the company operates. The strength of the balance sheet provides flexibility to allocate capital and create shareholders’ value in numerous ways, including investments in hiring new employees, acquisitions and share repurchases. Considering the aforesaid facts, current trading levels, business prospects, etc., we have valued the stock using price to earnings based relative valuation method. For this, we have considered peers like Accenture PLC (NYSE: ACN), Franklin Covey Co (NYSE: FC), CBIZ Inc (NYSE: CBZ), etc., and arrived at a target price which is offering a lower double-digit upside (in % terms). Hence, we give a ‘Buy’ recommendation on the stock at the closing price of $115.40, up 4.89% as on 26^th February 2020.
 

FCN Daily Technical Chart (Source: Thomson Reuters)

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