FTI Consulting, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Record Results: Reported record EPS and adjusted EPS of $2.60 per share, up over 40% year-over-year. The quarter was influenced by positive one-time factors, but even normalizing, it was a record quarter.
• Business Segments: Corp Fin, FLC, and Strat Com had strong performances, while E Con and Tech faced headwinds. Corp Fin had multiple sub-businesses with double-digit growth; FLC saw double-digit revenue growth and over 60% adjusted segment EBITDA growth; Strat Com had double-digit revenue growth and 34% adjusted segment EBITDA growth.
• Investments and Bets: Past investments in segments like Corp Fin, FLC, and Strat Com led to current strong results. Investments in underperforming segments like Tech and E Con are ongoing, with confidence in their propositions and potential.
• Talent and Expertise: Emphasis on attracting and promoting talent, building expertise in areas such as AI, investigations, and strategic communications. For example, FLC built on its financial services practice and expanded its cybersecurity and risk investigations practices.

Segment Performance

• Corp Fin: Revenue was $404.9 million, up 18.6% year-over-year. Adjusted segment EBITDA was $96.4 million, or 23.8% of segment revenue. Restructuring accounted for 46%, transformation and strategy 27%, and transactions 27% of segment revenue.
• FLC: Revenue was $194.7 million, up 15.4% year-over-year. Adjusted segment EBITDA was $42.6 million, or 21.9% of segment revenue.
• E Con: Revenue was $173.1 million, down 22% year-over-year. Adjusted segment EBITDA loss was $4.6 million.
• Tech: Revenue was $94.1 million, down 14.8% year-over-year. Adjusted segment EBITDA was $13.6 million, or 14.5% of segment revenue.
• Strat Com: Revenue was $89.4 million, up 7.4% year-over-year. Adjusted segment EBITDA was $16.9 million, or 18.9% of segment revenue.

Guidance

• Updated full-year 2025 guidance: Revenue is estimated to range between $3.685 billion and $3.735 billion, EPS between $7.62 and $8.12, and adjusted EPS between $8.20 and $8.70.
• Fourth quarter is typically weaker due to seasonal slowdown. E Con's recovery timing is uncertain. Continues to hire senior professionals, with 79 SMD and affiliate hires year-to-date.

Risks

• Headwinds in E Con and Tech segments, including lower demand and competitive talent dynamics.
• Uncertainty in market conditions affecting revenue and margins for segments like E Con.
• Potential impact of external factors such as the U.S. government shutdown on business operations.

Question and Answer

Q: How much of E Con's revenue decline is attributed to market conditions versus talent dynamics?

A: Steve Gunby estimated approximately 2/3 to talent transition and 1/3 to market conditions. He also noted EBITDA has not yet bottomed out.

Q: What drives the strength of the transactions practice?

A: Steve Gunby cited a strong team with conviction in their propositions, credibility building over time, and the ability to introduce new services as clients see the firm's expertise.

Q: Can FLC's price realization continue into next year?

A: Steve Gunby said there is rate potential across the business, but the catch-up in FLC this year is likely to be more modest going forward.

Q: What is the outlook for the restructuring business?

A: Paul Linton stated the restructuring business is strong in multiple geographies and positioned for larger mandates, with continued growth expected.

Q: How should we think about E Con's margin for next year?

A: Steve Gunby said the multiyear trajectory of E Con is confident, but the timing of recovery is uncertain.