FTI CONSULTING, INC Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Steven Gunby: Discussed strong first quarter, with FLC having a fabulous quarter driven by major roles. Corp Fin results in line with expectations, facing macroeconomic factors. Tech faces headwinds but has strong organic growth. Econ had departures but is replenishing talent. Stratcom beginning to get back on track. Emphasized conviction in the company's future despite uncertainties.
• Ajay Sabherwal: Went through company-wide and segment results, including revenues, earnings per share, adjusted EBITDA, and headcount changes. Detailed segment performances, cash flow, and balance sheet items, including share repurchases and forgivable loans.

Segment Performance

• Corporate Finance and Restructuring: Revenues of $343.6 million decreased 6.1% compared to first quarter 2024. Restructuring represented 46% of segment revenues, Transformation and Strategy 29%, and Transactions 25%. Adjusted segment EBITDA was $55.9 million (16.3% of segment revenues). Sequentially, revenues increased 2.4% with Transactions growth offsetting declines in Transformation and Strategy and Restructuring.
• Forensic and Litigation Consulting (FLC): Record revenues of $190.6 million increased 8.3%. Adjusted segment EBITDA was $37.5 million (19.7% of segment revenues). Sequentially, revenues increased 8.4% due to higher Risk and Investigations and Construction Solutions revenues.
• Economic Consulting: Revenues of $179.9 million decreased 12.1%. Adjusted segment EBITDA was $14.4 million (8% of segment revenues). Sequentially, revenues decreased 12.7% due to lower demand for M&A-related antitrust services.
• Technology: Revenues of $97.2 million decreased 3.5%. Adjusted segment EBITDA was $11.6 million (11.9% of segment revenues). Sequentially, revenues increased 7.2% due to higher M&A-related second request services, though this is not expected to continue in Q2.
• Strategic Communications: Record revenues of $87 million increased 7.2%. Adjusted segment EBITDA was $12.9 million (14.8% of segment revenues). Sequentially, revenues were up 0.5% driven by pass-through revenues.

Guidance

• Full-year 2025 effective tax rate expected to be between 23% and 25%.
• SG&A expected to be approximately $15 million to $20 million higher in next two quarters than Q1 due to legal settlements.
• Forgivable loans funded in Q1 will start impacting adjusted EBITDA in Q2.
• M&A market uncertainty and regulatory scrutiny pose risks to business.
• Expect headcount actions to result in $85 million annualized cost savings, offset by investments in talent.

Risks

• Regulatory shifts could impact FLC, especially in areas like anti-consumer fraud and anti-money laundering.
• Macroeconomic uncertainties affecting Corp Fin and Tech, including M&A market slowdown and recession concerns.
• Headcount departures in Econ causing near-term financial pressure despite talent replenishment efforts.
• Uncertainty in M&A market and restructuring matters impacting related services.

Question and Answer

• Q: Good morning and thanks for taking my questions, Steven and Ajay. Steve, just starting here on the tariffs, and the impacts on your business, could you maybe speak a little bit on which of the businesses as part of accounting that could be affected either positively or negatively by tariffs, and have you started to see any of these potential impacts thus far? A: Yes, look. I think whenever you have something, a major policy change, one of the issues is there's the first-order consequences, then there's a second and then a third-order consequence. I don't think, first of all, I don't even think everybody's absolutely certain about where the tariff thing is gonna end up, let alone the first-order, second-order, and third-order consequences. So, you know, we're in a speculation mode as everybody is on exactly. But, you know, you see things happening. You know, expert controls and sanctions, you know, our folks are involved in that. You know? Our folks are just busy as all can be. You know, supply chain people who are helping try to think about things like that. You know, there's national security issues being discussed based on some of this. There's some strategy questions. Our Stratcom people are being asked to help with communications issues and so forth. You know, the big wild card is restructuring. You know, if you're somebody who is who's totally dependent on cost of goods sold coming out of China right now, you have some stress on you. And so that I think is behind a couple of the more recent things that we that Ajay was referring to. So there's a lot of stuff. Wasn't the driver of most of the first quarter, I would say. But you see a lot of discussion and activity going on right now around a lot of different areas. Does that help, James?
• Q: It's really helpful. Thanks, Steve. Maybe just another one related to policy, and I know it's still early, but we've had a little bit more time on this one than we have had on tariffs. But perhaps you could just talk about the impact of Doge thus far on the business and perhaps with particular focus on the forensic and litigation consulting business. A: So far, I would say we have not seen an effect of that. I think, abstracting from those specifically, those initiatives, as we talked about, if the thrust of this administration is to cut back regulatory enforcement on a number of key areas, that can have a pretty big effect on us. We've been one of the leaders in anti-consumer fraud issues. We have a big practice in FCPA. We have a big practice in anti-money laundering. To the extent those policies get rolled out either because of conscious decisions or because of headcount reductions, then that can have a substantial impact on us. But as you saw in FLC, which is the most likely to be affected business right now, FLC has been booming. So, you know, I think we are pretty carefully monitoring those. We think it could have a pretty substantial effect if those are maintained, and that's what we tried to telegraph here. But as of now, we can't find a huge effect on our business. You disagree, Ajay, or is that pretty much your perspective? A: I would agree with that. Does that help, James?
• Q: Thank you. And then just one last one for me. I just wanted to make sure that I understand your comments on guidance. So, is the guidance for this year that you gave at the fourth quarter 2024 earnings call still applicable, or are you saying that it has been suspended and you'll give us an update at the second quarter earnings call? A: It is still applicable, James, and we will give you an update at the second quarter earnings call.