FTI Consulting, Inc. FCN continued its strong operational performance in second-quarter 2015, with its adjusted earnings of 50 cents per share beating the Zacks Consensus Estimate of 46 cents. However, adjusted earnings compared unfavorably with the prior-year figure of 55 cents, reflecting a decline of 9.1% year over year.
Also, the business advisory firm trimmed down the higher end of its 2015 earnings guidance to a range of $1.95–$2.15 from previous expectations that were in a range of $1.95–$2.20.
Adjusted net income came in at $20.7 million per share, down 8.4% year over year, hampered by top line weakness in Strategic Communications and Economic Consulting segments. Adverse foreign currency translation impact further weighed on the company’s results.
Revenues for the quarter declined 1.1% year over year to $449.1 million, and lagged the Zacks Consensus Estimate of $452 million. Notable growth in the abovementioned segments was more than somewhat offset by top line weakness in Strategic Communications and Economic Consulting segments.
Adjusted EBITDA for the quarter came in at $55.8 million, down 6.8% from $59.9 million in the prior-year quarter.
Segment Details
Corporate Finance/Restructuring segment revenues showed significant growth at $109.1 million, rising 4.9% year over year despite a 4% negative impact due to foreign currency translation. Enhanced demand for the transaction advisory services in the Europe, Middle East and Africa ("EMEA") region and strength in the distressed and non-distressed service offerings in North America buoyed the revenues. However, the effect was partially offset by sustained weakness in the Asia Pacific region. Adjusted EBITDA for the segment was $22 million, up 15.2% from the year-ago quarter.
Economic Consulting revenues continued to show sustained weak performance, falling 7.3% year over year to $108.7 million. Weakness in demand for the segment's non-mergers and acquisitions ("M&A") related finance and antitrust services and negative impact of foreign currency translation contributed to the feeble performance of the segment. Adjusted EBITDA came in at $15.3 million versus $18 million in the prior-year quarter, dragged down by lower utilization in the non-M&A related antitrust and financial economics practices.
Forensic and Litigation Consulting segment revenues grew 5.9% year over year to $126.1 million, in spite of a 1.9% negative FX impact. The primary drivers of growth for the segment were higher demand in health solutions, global construction solutions and investigations practices. Weakness in the financial and enterprise data analytics practice somewhat restricted the segment’s performance. However, adjusted EBITDA for the segment declined 10.3% year over year to $20 million in the reported quarter, dragged down by lower utilization, growth in staffing, as well as increased bad debt expense.
Technology segment revenues edged towards growth after considerable softness in the last quarter, and inched up 1.8% year over year to $61.8 million. The growth was led by increase in M&A-related "second request" assignments, which was somewhat offset by declining services revenue from large-scale complex cross-border investigations and lower consulting revenues. Adjusted EBITDA came in at $12.2 million, down 19.2% over the prior-year period. Weaker price realization, higher investments and increased share of lower-margin services led to the significant year-over-year decline in adjusted EBITDA.
Strategic Communications segment was the weakest performer this quarter, as revenues decreased 18.6% year over year to $43.4 million in the quarter, driven to some extent by the unfavorable foreign currency translation effect. Lower retainer-based revenues in North America, decreased pass-through income and lower project-based revenues in North America and EMEA contributed to the significant weakness in the segment. Despite the negative revenue growth, superior mix of higher margin engagements and reduced headcount-related costs led to an adjusted EBITDA of $5.6 million, or 13% of revenues, for the quarter, compared with $5.8 million or 10.9% of revenues in the prior-year period.
Other Financial Aspects
At quarter-end, FTI Consulting had cash and cash equivalents of $240 million versus $94.4 million on Jun 30, 2014. Long-term debt (net of current portion) stood unchanged from the year-end 2014 at $700 million. Net cash provided by operating activities for the quarter amounted to $20.6 million, compared with $33.7 million in the prior year.
Guidance
FTI Consulting expects the momentum in its European tax and advisory business to continue going into 2015. However, maintaining the strong growth in its Corporate Finance revenues and sustained weakness in the Australian business would remain challenges for the company in the near term.
The company revised its guidance for 2015 downward and now expects adjusted earnings per share to lie in the range of $1.95–$2.15, compared with previous expectations of a range of $1.95–$2.20. Also, FTI Consulting expects its revenues for the year to lie between $1.75 billion and $1.85 billion
FTI Consulting currently sports a Zacks Rank #1 (Strong Buy). Other stocks in the consulting industry that are worth considering include Gartner Inc. IT, Towers Watson & Co. TW and Accenture plc ACN, each carrying a Zacks Rank #2 (Buy).
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