Welcome to the FTI Consulting First Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mollie Hawkes, Vice President of Investor Relations. Please go ahead.

Good morning. Welcome to the FTI Consulting conference call to discuss the company's First Quarter 2022 Earnings Results as reported this morning. Management will begin with formal remarks, after which they will take your questions. Before we begin, I would like to remind everyone that this conference call may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21 of the Securities Exchange Act of 1934 that involve risks and uncertainties. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events, future revenues, future results and performance, expectations, plans or intentions relating to financial performance, acquisitions, share repurchases, business trends, ESG-related matters and other information or other matters that are not historical, including statements regarding estimates of our future financial results and other matters. For a discussion of risks and other factors that may cause actual results or events to differ from those contemplated by forward-looking statements, investors should review the safe harbor statement in the earnings press release issued this morning, a copy of which is available on our website at www.fticonsulting.com, as well as other disclosures under the heading of Risk Factors and Forward-looking Information in our quarterly report on Form 10-Q for the quarter ended March 31, 2022, our annual report on Form 10-K for the year ended December 31, 2021, and in our other filings with the SEC. Investors are cautioned not to place any undue reliance on any forward-looking statements, which speak only as of the date of this earnings call and will not be updated. During the call, we will discuss certain non-GAAP financial measures such as total segment operating income, adjusted EBITDA, total adjusted segment EBITDA, adjusted earnings per diluted share, adjusted net income, adjusted EBITDA and free cash flow. For a discussion of these and other non-GAAP financial measures as well as our reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures, investors should review the press release and the accompanying financial tables that we issued this morning, which include the reconciliations. Lastly, there are two items that have been posted to the Investor Relations section of our website for your reference. These include a quarterly earnings presentation and an Excel and PDF of our historical financial and operating data, which have been updated to include our first quarter 2022 results. Of note, during today's prepared remarks, management will not speak directly to the quarterly earnings presentation posted to the Investor Relations section of our website. To ensure our disclosures are consistent, these slides provide the same details as they have historically. With these formalities out of the way, I'm joined today by Steven Gunby, our President and Chief Executive Officer; and Ajay Sabherwal, our Chief Financial Officer. At this time, I'll turn the call over to our President and Chief Executive Officer, Steve Gunby.

Thank you, Mollie. Welcome, everyone, and thank you all for taking the time to join us this morning. Let me start by reiterating that our thoughts are with not only the people of Ukraine, but also all of you who may have relatives or colleagues who are directly affected by this unbelievable horrible event. With respect to our quarter and the condition of our company, it's obviously been only a couple of months since we last spoke. So the messages we have today are not radically different from what we talked about with you about two months ago. So I'll be brief in my remarks, let Ajay take you through the quarter, and then I look forward to coming back to join him and you for Q&A. The financial results this quarter were overall very much in line with our expectations. There are always, of course, puts and takes in the individual sub-businesses, but overall, the key themes we saw this quarter are very much in line with the key themes we talked about a couple of months ago. For example, we're facing headwinds that we anticipated, including things like competitive talent markets, competitive compensation pressures. We're dealing with them, but of course, there's a lot of work to do to make sure you stay on top of those forces. Similarly, as we talked about, we are looking at every bit of information to assess things like when is the restructuring market potentially coming back and where and when or if the M&A market might weaken at the same time or ahead of it or behind it. We have discussion processes underway, monitoring processes. And I think the reality is at this point despite all of those processes, it's still the case that nobody has a clear crystal ball on…

Thank you Steve. Good morning everybody. In my prepared remarks, I will take you through our company-wide and segment results, and discuss guidance for the full year. Overall, our quarterly results were in line with our expectations. First quarter of 2022 revenues of $723.6 million were up $37.3 million, or 5.4%. GAAP EPS of $1.66 compared to $1.84 in the prior year quarter. Adjusted EPS of $1.66, compared to $1.89 in the prior year quarter. Net income of $59.3 million compared to $64.5 million in the prior year quarter. This decrease is primarily because the 5.4% growth in revenues was not sufficient to offset the increase in SG&A and compensation expenses. SG&A of $149 million was 20.6% of revenues and compares to SG&A of $126.5 million, or 18.4% of revenues in the first quarter of 2021. The increase in SG&A was primarily due to higher travel and entertainment, compensation and legal expenses. First quarter 2022 adjusted EBITDA of $90.5 million decreased 9.1% compared to $99.5 million in the prior year quarter. Our first quarter 2022 effective tax rate of 22.2% compared to our tax rate of 23.9% in the first quarter of 2021. For the balance of 2022, we continue to expect our effective tax rate to be between 22% and 25%. Weighted average shares outstanding, or WASO for Q1 of 35.6 million shares increased 584,000 shares compared to 35.1 million shares for the prior year quarter, primarily due to the dilutive impact of our convertible notes. For the quarter, our convertible notes had a potential dilutive impact on EPS of approximately 998,000 shares in WASO, compared to approximately 450,000 shares in WASO in Q1 of 2021, as our share price on average of $149.8 this past quarter was above the $101.38 conversion threshold and above our share price on…

We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Andrew Nicholas with William Blair.

Hi. Good morning. Thank you for the question. A – Steven Gunby: Good morning.

The first question I had was on CFR. And believe it or not I want to -- instead of starting with restructuring questions, I want to focus on BTT. I think Ajay you said in your prepared remarks that you're assuming or expecting that to remain robust. I think that's a bit surprising to me just given, what seems to be a slowdown in M&A activity globally. Can you kind of highlight some of the reasons, why you feel strongly about that business in particular? Are there transactions that we're not seeing that are keeping that activity elevated, or is there a particular momentum in there that you'd like to call out? That would be helpful.

Thank you, Andrew. So firstly, business transformation and transactions is infinitely bigger space than restructuring. And we only got started in a meaningful way last several years but in restructuring we are unquestionably number one in the world. So there is that the demand potential. Second, you saw year-over-year the kind of growth we have had in business transformation and transactions. It's a stellar number. And to your question in transact with that between business transformation and transactions for the last five-odd quarters transactions is actually bigger slightly, than business transformation and that's remained consistent. Where we play in that transaction space is in that middle market space, the private equity, sponsored acquisitions, there is no let up. A – Steven Gunby: Maybe I can add to that though a little bit, Ajay. I think we don't have different view of the general M&A market than what you're reading out there. It's just that we play in so many different parts of it. In some of our businesses, I think we've seen some M&A slow down. In others, we haven't if I'm remembering right, Ajay.

That's correct. A – Steven Gunby: In that part of the business, we haven't yet seen a slowdown partially because of the middle market nature, partially we hope because we continue to gain share in that market. And I think that's the basis for the optimism. It's not so much that we -- or I think we know better the macro forces than anybody else. Andrew, does that help?

Yes. No that's helpful. Probably another or more evidence of the breadth of all the different areas that you're operating in. I guess for my follow-up, I wanted to ask about FLC solid sequential step-up in revenue there. Utilization is improving. Could you talk a little bit about momentum in that business what the pipeline looks like for that segment and maybe how that's developed relative to the past couple of quarters where I think you were a bit slower, at least in terms of large project opportunities than you had hoped or anticipated? Thank you.

So our optimism, Andrew, is obviously we do have visibility on backlog and pipeline, right? But what happens is sometimes those things get deferred, delayed. It's not certain exactly when projects will start and what have you. So, we certainly expect and believe that there will be continuous improvement in that segment. We have hired, they heavily in a variety of areas, both in specific work streams like health solutions and investigations and cybersecurity, but also geographies. So our belief is we are very bullish on it.

Great. Thank you.

[Operator Instructions] Our next question will come from Tobey Sommer with Truist Securities. Please go ahead.

Thank you. I wanted to ask a question about EMEA. And if you want to broaden it and just call it your international business, that'd be fine. Where are you in the growth in your capabilities across your multiple segments such that the markets in which you operate in are sufficiently staffed where you can win the most complex engagements that often require contributions from multiple segments? And then maybe on the financial side of the same question, where are we in terms of the evolution of those geographies being able to contribute accretively to the company's margins as they sort of leverage G&A more effectively?

Maybe I'll take a crack at that, Ajay, and then you can give more texture if you think I missed something. I mean it's a great question. So it depends, obviously, on geography. Where we are in the UK is we have the breadth of -- just like the US, we have the breadth of services, the breadth of capabilities. We can win the biggest jobs, local jobs. We can team with the US and other places to win the biggest global jobs in a segment, and we have the cross-segment capabilities to win the biggest jobs when the job is ideally is best served by a cross-segment offering. Historically, we did not have that most places on the continent or elsewhere in EMEA, and frankly, most places elsewhere in the world. At first, I don't think we really fully had it even in London when I first got here, and we certainly didn't have it on the continent. What we're doing this year, I think, and have been doing over the last couple of years, is a step-change in the capabilities we have on the continent. We've always had good kind of capabilities on the continent. But to your point, it was -- tended to be more a single segment in a geography. So we have a good Stratcom business in Germany. We didn't have a Corp Fin business. We didn't have an FLC business. We had some capability in France, but it wasn't the scale that we wanted to be. We had no presence in the Netherlands. We had, at one point, a solid Stratcom business in Brussels. Now we have the leading Stratcom business in Brussels, and we have some other capabilities there. So this is right now. The last couple of years, but particularly this year…

You did. You did. Thank you. So we talked about wage inflation certainly a topic broadly in your business. How have realized bill rate increases this year compared to sort of same-store compensation growth? I understand you're adding heads so I'm kind of asking for an adjustment there just to get a sense for how those two figures compare?

Yeah. So let me give a crack at this, but then Ajay can say. Look we've talked about this a lot and I've underscored with our leadership team that for our best professionals, we can't get behind the market. You just can't -- you can't build a business by -- I mean look if somebody wants to leave for a 3% increase then that's on them. But you can't allow yourself to get far off the market. And so we've made significant adjustments and we're monitoring and are willing to make significant adjustments going forward. Now, my also experience is over any extended period of time, you can recoup that in price and we need to have that discipline and we've underscored that. So we have made adjustments in list prices and so forth. You always then have a question of how long does it take to get realized. And that's a very idiosyncratic thing. And Ajay has all sort of monitoring processes in place. I'm not sure we know yet the exact results of those monitoring processes Ajay, but if you want to correct that and saying you know exactly you can correct now.

No. With pricing, you can never say that. So certainly, for now the anecdotal and mathematical evidence suggests that they are sticking. There's no material appreciable difference in realization one year to the other and there are rate increases obviously. Now you may not -- if you see our -- we give the bill rate per hour realized bill rate, per hour statistics for Corp Fin Econ and FLC and you can track the quarterly and the year-over-year trends and you might have noticed there that it doesn't look like there's an appreciable increase year-over-year. In fact, sequentially in Econ, for example, there's a decline, but that's not because rate increases for example are not sticking. There's a variety of other things that go into that like leverage like whether using junior staff, senior staff mix where the rate increases have been. Sometimes you can have deferrals of revenues and reversals of such deferrals just because the client hasn't accepted the engagement and the work has started. So those sorts of things can cause variability. But in terms of your question Tobey, rate increases are largely for now sticking.

And I wanted to ask a balance sheet and capital deployment question. It's a longer-term one. I realize rates are rising now, so maybe this isn't the best time to sort of optimize the balance sheet, but you build for the long [Technical Difficulty]. The business is so resilient. In 2020, that was extraordinarily turbulent, your business performed quite well. And it would seem that a company full of finance and accounting professionals would understand that carrying some debt would improve the returns on the business and not extraordinarily stress the business and the company during the downturn. What's the long-term plan to more sort of effectively numerically academically manage the balance sheet?

I think you're not suggesting, we leverage up and compete with Elon for buying Twitter. That's not what you're suggesting here I think Tobey, right?

It takes just about driving ROIC higher.

Let me let, Ajay speak to whatever we publicly speak about that. We obviously think a lot about cash and our policies here and we talk a lot about to the Board. I don't know how much we share that, Ajay. I'll leave this to you the question.

No, we've – listen you make a great point, and it's a textbook sort of question. And you're absolutely right. I am the CFO of a company of CFOs and CEOs. There's no question and there's no dearth of advice that one can get that, I actually solicit. Yet, most people will tell me that, we are in the – we're number one in the world in restructuring and interest rates are on their way up. And cash is good to have. And to be five, six, eight times levered is probably not a great spot to be, if you're giving consulting advice and restructuring. At least that's what I'm told and I believe. In my own head, I feel in a company with we – as someone once reminded me we are not a subscription business. Though our relationships feel like subscriptions, but we are actually not a subscription business. So more than two times gross debt, certainly we can comfortably take on a lot more than that. But what we do is a debatable matter.

Okay. I guess, I'm not talking about some sort of polarizing thing where you would lever up to the six, seven, eight time degree. But sort of why not oscillate around one and a half turns or two times of debt in a business that isn't cyclical with a management team that has kind of indicated that large investments in acquisitions are unlikely.

No, no, I'm not disagreeing with you, Tobey. What I will say is debt for debt's sake is not an objective. I have no objection to cash piling up in the company, and at the same time deploying it, at opportune moments. But not to take on debt to increase turns, if we don't have a credible deployment opportunity.

So let me just add here, Tobey.

Okay. Thank you.

Tobey, sorry I'm just going to add something. It's just – I think you're right on that. There's no way this company is not at risk if we had two or three times EBITDA on debt. I mean, I think Ajay is right. I think that some of our competitors who have six or eight, I'm glad we're not in that position. But it's just part of a question that we talked about on an ongoing basis of where our cash position is how to use it all those sorts of things. So we don't have a religious prohibition against two or three times EBITDA on debt. It just hasn't been in our opinion opportunity to go there at this point in time. Tobey, does that help?

It does. I was just hoping to discuss how you might be able to get there over the long term, without tying you down to a specific action like, perhaps investing more than annual cash flow and repurchase over a number of years would be a way to do it.

Yeah. Yeah. I think we're not – at this point you can hear from my CFO, he's not ready to share that level of detail on plans. But I think he'll take your input as he does a lot of people's input. Okay.

Thank you so much.

Thank you. Thanks for your coverage.

We have no further questions. Thank you for joining today’s conference.

Yeah. Thank you all for the attention and the support, and I'm hoping everybody stays – continues to stay safe. Thanks again.

This concludes our conference for today. Thank you for attending today's presentation. You may now disconnect.