Good morning, everyone and welcome to the FTI Consulting Third Quarter 2022 Earnings Conference Call. [Operator Instructions] Please also note today's event is being recorded. At this time, I would like to turn the floor over to Mollie Hawkes, Vice-President of Investor Relations. Ma'am, please go ahead.

Good morning, welcome to the FTI Consulting conference call to discuss the company's third 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 involves 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, acquisition, 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 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 September 30, 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 undue reliance on any forward-looking statements, which speak only as 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 margin and free-cash flow. For 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 third 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 and as I have said, are available on the investor relations section of our website. With these formalities out-of-the way, I am joined today by Steven Gunby, our President and Chief Executive Officer; and Ajay Sabherwal, our Chief Financial Officer. At this time, I will turn the call over to President and Chief Executive Officer, Steven Gunby.

Thank you, Mollie. Welcome everyone and thank you all for joining us this morning. As always, Ajay will go through the numbers in some detail, but first with your permission, I'd like to share a few perspectives that hit me, some thoughts that hit me, as I reviewed those numbers. The first reaction I had, which may be similar to the reaction that some of you had when you first saw those numbers this morning was wow. The numbers this quarter are amazing. This was another extraordinary quarter, another in a long line of extraordinary quarters. So, a very bullish reaction I'd like to share. The second reaction I had as I looked at the numbers a little more fully was less bullish and I want to also share that. As I examined the numbers a little closer the numbers in some real sense overstated the underlying strength of the business this quarter. So, there were parts of the business that did extraordinarily well, in fact, parts that exceeded Ajay's and my expectations, in fact, more parts of the business underperformed Ajay's and my expectations than overperformed. We had in the words I've used before a few more zags than zigs this quarter. What I found as I looked more closely, in fact, that a big driver of the extraordinary level of results this quarter was not the underlying business performance, but some major one-time factors that happened to cut in our favor this quarter. So, that's a less bullish point that I'd also like to share. And the third point is the one that I think I don't need quarters to think about is when I think about all-the-time and that we've talked about many times, which is a broader perspective point which is that there are always quarterly…

Thank you, Steve. Good morning everybody. In my prepared remarks, I will take you through our companywide and segment results and discuss guidance for the full-year. Beginning with our third quarter results, we reported both record revenues and EPS this morning. Year-over-year revenue growth, a lower tax-rate and an increase in FX remeasurement gains more than offset the impact of higher compensation, SG&A expenses and weighted-average shares outstanding or WASO, and billable headcount grew 414 professionals or 7.4% sequentially. Though these headlines are impressive, as Steve said, they were in-part boosted by one-time items. In particular, there are three key one-time items this quarter that should not be extrapolated. First, when we announced Q2 results, we mentioned that in our Economic Consulting segment, we were unable to recognize significant revenues in the first half of the year, more than the typical level of such revenue deferrals and that we fully expected to be able to recognize such revenue in the second half of the year. This quarter conditions for revenue recognition were met and such revenue was fully recognized and amounted to $21.4 million. Second, we were able to utilize our foreign tax credits against the licensing of our intellectual property, our brand to additional foreign subsidiaries. This resulted in a reduction of $8.3 million in book taxes that contributed to a tax-rate of 17% this quarter. Third, we had FX remeasurement gains from the rise in the U.S. dollar that boosted pretax income by $7.1 million. The outcome of FX remeasurement is inherently volatile. Our updated guidance for the year with only one quarter remaining is both narrower than the original range and because of the passage of time and now has earnings per share in the bottom half of our original range. It is in part shaped by…

[Operator Instructions] Our first question today comes from Andrew Nicholas from William Blair. Please go ahead with your question.

Hi, good morning.

Good morning.

I wanted to start with restructuring perhaps unsurprisingly. You talked about seeing a moderate pick-up quarter-over-quarter and having seen that the past several quarters but not expecting a major acceleration in the fourth quarter, is there - it's kind of the cadence of defying of this restructuring market. Any different than maybe what you would have expected or what you've seen in prior kind of cyclical rebound in that business or any just thoughts on that cadence and looking ahead to next year?

I'll give my view and then feel free-to disagree if you have a different view. I mean it's something we talk about a lot in here. I think - look, I think, there, history never is a perfect guide to anything, certainly in our business and I think maybe in general in the world. I would say my sense is this is unfolding slower than at least so many people would have expected and may have unfolded slower than many times in the past. There are multiple reasons for that I think. First of all, certainly in Europe they're still governmental pressures to make sure that banks don't foreclose because there's just a lot of fragility in the economy and people are worried about. Yes, they have to clean-up balance sheets at some point, but there are wars going on and there's a lot of issues going on in Europe. So, I think there are some headwinds that may not have been in other, in other cycles. It's also the last, actually years the, the covenants have become extraordinary light in a whole lot of loans. And that really does affect the creditor side business, it affects how quickly banks or lenders can actually trigger a re-examination. It doesn't necessarily affect the company's side work, but it does affect the creditor side work in a big way. And in the U.S. where both companies side, creditors side and many places around the world, we are primarily creditor side. So, I think, I think this is certainly unfolding slower than I think many people in our firm and elsewhere expected. And I think, I think that's kind of a realization, and I think it may continue to unfold slower than many people expect. I do not believe the need for restructuring over-leveraged balance sheets has gone away permanently, and so you will hear both of those themes in Ajay's and my comments, but it can, it may - this may be, I'm trying to think of a baseball analogy. It's certainly not, it is not 100-mile per hour fastball, there are some [indiscernible] that pitches out there, this is a slowly unfolding scenario at least as we currently see it. Does that talk to your question, Andrew?

Yes. No, that's helpful. And then maybe as my follow-up switching over to FLC, obviously utilization ticked down I believe quarter-over quarter. It's still to hardly below pre-pandemic levels. At the same time, it does appear that you guys are continuing to higher pretty aggressively there. I would imagine that speaks to your conviction and utilization and demand trends picking back up. But if you could kind of walk-through that thought process and your outlook there that would be helpful? Thank you.

Yes. No, thanks for the question. Yes, look it's somewhat - look, absolutely, we are long-term quite bullish on all our businesses. But, yes on FLC, the long-term trajectory of FLC, in some parts of FLC, you're actually performing quite well, right now. If we were willing to whipsaw hiring based on current business, we would probably be having headcount lower here because some places in FLC are short from where we expected them to be. But you don't hire just based on the quarterly results, you hire based on A, availability of talent, and, B, actually the thing is the first year consultants of today are your Senior Directors over few years from now and your Managing Directors. I sometimes analogize this to the Scotch business, it takes six years to grow fabulous Scotch, six-year Scotch. It takes 12 years to get great raw-material, season it in the right environment to get 12-year scotch, and we're in the business not just this quarter, we're in the business of developing fabulous six-year and 12-year-old Scotch, fabulous Managing Directors and Senior Managing Directors and so, yes, I don't think you say the hiring, the fact that we're continuing to hiring means we expect an immediate rebound in every business that is slow right now. But we do have - but because we have those multiple objectives. But if you're asking me whether I have long-term confidence in that business, absolutely I do.

That's helpful. Thank you.

Our next question comes from Tobey Sommer from Truist Securities. Please go ahead with your question.

Thank you. From a multi-year perspective, what you think we are in journey of geographic expansion for the firm and, and maybe not in its entirety but of sort of major countries that you might want to have a presence in or flesh out a presence in. And I'm asking from a perspective of trying to understand and anticipate when the incremental infrastructure investment that accompanies that may sort of peak crescendo and then moderate allowing for a tailwind to profitability?

Now that's, that's a great question. So look, I think there's a couple different ways to look at that. Let me talk about three different ways to look at the same question. First of all, I don't believe we need to be in any additional countries in order to grow this company extraordinarily over the next while. We have growth opportunities in the U.S., we have - yes, we are in France, Germany, I mean, all the countries I mentioned, but we have extraordinary opportunities to fill those countries out. We have the landing team on the ground. We haven't, we are nowhere near as big in those countries as we need to be. And so we don't need to have to meet growth aspirations that Ajay has or for shareholders, we don't need to be in other countries. I think the reality in professional services though is - it just, there's always - and we're in the major, most of the major geographies at this - I mean your G7, G, whatever you want to call it. I think the reality in professional services though is as you continue to succeed there's, there's spillover, you have people who are great in Germany, who know people in Switzerland. You have people in the Middle-East who know people in other parts of the Middle East. You have - and that's the nature, if you look at any great professional services firm as they grow, even if they didn't have to go, have to go into those other countries, you do extend into those other countries. Many of them you treat as adjuncts to your existing country - companies, so you don't have to build-out the entire infrastructure. If they are right next door and you can, you can, and do that, but - but I think we don't have to be in 30 more countries in five years whether we are in a bunch more countries, I suspect we will be. But without the sort of infrastructure that a Germany, a France, a Middle-East, in Italy, all those - the major countries would - will require. Does that - does that help a little bit?

It does, so let me follow-up if I could. From a, from a peak investment in infrastructure at least on an incremental basis, not absolute dollars of course, are we somewhere, are we somewhere in the peak process without trying to call a quarter or within a peak four, six-quarter period for that based on the bigger countries where you do require infrastructure and don't have sort of adjunct capability and sort of optimal setup?

No, no Tobey. We are not, we are not in our - for example take it Germany, I would not say we are in our peak infrastructure in Germany in the back-office right now from it. We are early in our, in our development there, but we have shared service centers in various other locations and I do not expect that we will replicate everything that we have in our shared service centers in every geography either. So in aggregate you should see diminishing percentages but in each in terms of non-billable headcount growth but in each specific country, we are in early stages. I mean, let me make that come alive a little bit, I mean we have hired fabulous people in Germany. If we don't have a website in German, if we don't have contracts in German, if we don't have contracts that actually confirm with German law. Those, those professionals are handicapped and they actually don't feel emotionally supported. But, Americans don't automatically or folks in U.K. don't automatically know the nuance of Employment Law in Germany or France or - and so we if part of the commitment to grow out for those countries is to put infrastructure, not luxurious infrastructure, we're not serving caviar every day, but putting the basic infrastructure in-place to support professionals who are building our business and we have started that process but certainly in the countries we're in today, it's not peaked absolutely. Does that - I think that's consistent with what you said, Ajay

Yes.

And then if I could ask another question about hiring if you can describe it from a few angles at the - through upper-middle to most senior levels. One of the trend has been the internal promotions and contrast sets of laterals and maybe comment on the extent to which the brand and/or external market changes are triggering the phone to ring a little bit more? Thanks.

Yes, I think that's a continuation of where we've been Tobey. It's - That's one of the most gratifying parts of the job, both sides of that. I mean, sometimes when you get the phone ringing externally, people think, oh, so, there's not going to be promotions and that's not the case. The phone continues to ring externally in many more places around the world than it once did. But we've also had absolute record promotions internally and I don't, Mollie can probably dig out the numbers and give you that. I think we did publish those numbers, right?

Yes.

So, we can get you those numbers but it's, it's a really, it's a really great thing. I had a conversation yesterday with the, the win MDs, that's a group of very talented women who are either just at the Managing Director level or have been there for a while who are very-high potential and you just look at that you talk to those folks and you would say wow, the potential for us to continue to grow is just there from internally and so I feel that is something, one of the source of my bullishness Tobey. So far both sides of that are really, really fabulous. Did that respond?

Yes. Do you have a current sort of modern-day example of a new service line exiting '22 into '23 that you expect to be a contributor in something we talk about akin to adjacencies that you've launched during your tenure in previous years?

So, we have lots of them. I mean, every quarter I sit down with every segment and we talk about where we are with our core businesses, where we are on core geographies, which geographies do we think we can extend into, which adjacencies are we reinvesting in, have the adjacencies been proving out, we want to double down investment and are there new adjacencies and so with Sophie, I talk about E-Discovery, I talk about our thrust to not only broadening our law firm relationships in the U.S. but also our corporate relationships in the U.S. The equivalent in the markets that we're now in Europe where we weren't there but also new services that we've done, information governance, which ties to our corporate offering, most recently the Exco has been talking about blockchain and crypto where there's a lot of people in the world who, who can spout like me, who can spout what you read in an article about blockchain and crypto. We happened to have people internally who have testified in some of the biggest trials, broad trials, valuation trials, who understand it, who built blockchain and crypto businesses and who can actually be value-added in there and so we're scaling that business up too, because there's lot of people who can talk about it, there are a few of us, a few folks who can actually do it. So, it is a constant conversation and I don't think I want to competitively list all the areas we are investing in.

The one additional one that is ESG.

Okay sure.

We are the firm that helps companies make their major transitions and buoy is ESG ever transition, so, so, we have a full-court press and tremendous capabilities there.

And we had tremendous capabilities in various segments and I don't know if do we publicly announce the fact that we --.

No.

We unify that under a leader to make sure we're bringing the entire firm because Strategic Communications around this is different than helping somebody get there - their emissions in line but, but there is value in bundling those together. So, we asked a woman in our organization, [Maryann Robles], to coordinate that across the firm very recently. So, those are a couple examples. Does that help Tobey?

Yes, very generous. I have one last question. Can you double the size of the firm?

Yes. I mean, we can double the size of the firm. Can we double the size of the firm while I'm still CEO? Maybe, maybe. But this firm's potential is enormous. We are, I think, somebody like me, said something, I still believe we are closer to the beginning of this journey than we are to the end.

That's helpful.

Any other questions? Well, let me say - let me just say thanks to the moderator. Let me just say thank you all again for your continued attention and support for our firm. We really appreciate it and if you have further questions. please reach out to Mollie or Ajay. Thank you for attending today.

And ladies and gentlemen with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.