Welcome to the FTI Consulting Fourth Quarter and Full Year 2024 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. Please note this event is being recorded. I would now like to turn the conference over to Ms. Mollie Hawkes, Head of Investor Relations. Please go ahead, ma'am.

Good morning. Welcome to the FTI Consulting Conference Call to discuss the company's fourth quarter and full year 2024 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 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, initiatives, projections, prospects, policies, processes and practices, objectives, goals, strategies, future events, future revenues, future results and performance, future capital allocations, and expenditure expectations, plans, or intentions relating to acquisitions, share repurchases, and other matters. Business trends, new or changes to laws and regulations, scientific or technical development, 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 headings of risk factors and forward-looking information in our quarterly report, on our annual report on Form 10-K, for the year ended December 31, 2024, and in other filings with the SEC. Investors are cautioned not to place 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,…

Thank you, Mollie. Welcome, everyone, and thank you all for joining us today. I'm sure many of you have already seen some of the results we've reported this morning. What I'd like to do is to start by sharing some perspective on 2024. It was a year with some terrific elements. Also a year, particularly towards the second half of the year, where we had some shortfalls versus our expectations. And then I'd like to spend the bulk of the time on 2025, a year where I have to say we are probably facing as serious headwinds as we have had in a while. And in that connection, I'll try to communicate both what we see the potential headwinds are and importantly try to send in a sense of the potential magnitude of the headwinds. Because together, they are creating about a serious challenge for the P&L for a year as we've seen in a while. So I will spend a fair amount of time on the potential challenges for 2025. I will also, with your permission, take a moment to close the session by reiterating something fundamental, something important, which is that the success of this company over the last ten years has never been about optimizing a given quarter or even optimizing a year. What has driven our success has been continually focusing on building a stronger business. The business ever more able to deliver for our clients and ever more attractive for great professionals to be part of. And as a result, delivering a multiyear trajectory of growth. At the end of the talk this morning, I will reiterate, though I am somewhat sober about the headwinds we're facing in front of us for 2025, I do remain incredibly bullish about the company, about the multiyear trajectory…

What we have believed and I think the data show that, yeah, over short periods of time, market forces and idiosyncratic forces can impact us. Potentially have a major impact. But I believe the same data also show that if we maintain our focus, we maintain our commitment to do the right things for the business, we have to monitor the market forces. We have to adjust what we do. But underlying that, we focus on what matters in professional services. The fundamentals attracting great people, supporting those people, people who have a drive to make a difference for their clients, who have drive to mentor and see grow the careers of people behind them. If we do all those things, actually, we still have substantial zigzag. We just have substantial zigzags and portions of the business adapt overall. But what we've also shown is that through those zigzags over any extended period of time, those zigzags surround a powerfully upward sloping line for shareholders, for clients, and for our people. Some years, they slope up less. Some years, they slope up more. Over time, we've proven that that commitment delivers a powerfully substantial lineup that reflects the strength of what our teams do for our clients, and the excitement and the pride they have in doing so. And having other great colleagues join them in those enterprises. We intend to maintain that commitment. And I've believe we've shown that with that commitment, even if we have some muted results this year or given quarter, this company has an extraordinarily bright future. For you, the shareholder, or clients? And the great people who join us and stay with us. I and the team look forward to sharing that with you as we go forward. With that, Ajay, let me turn it over to you.

Thank you, Steven. Good morning, everybody. In my prepared remarks, I will take you through our company-wide and segment results and guidance for 2025. And beginning with highlights from our full year 2024 results. Revenues of $3.7 billion increased 6% compared to revenues of $3.49 billion in 2023. GAAP earnings per share of $7.81 compared to $7.71 in the prior year. Adjusted EPS of $7.99 compared to adjusted EPS of $7.71 in the prior year. The difference between our GAAP and adjusted EPS for the year reflects an $8.2 million fourth quarter special charge related to severance and other employee-related costs, which reduced GAAP EPS by $0.18. Net income of $280.1 million compared to $274.9 million in 2023. Adjusted EBITDA of $403.7 million or 10.9% of revenues compared to $424.8 million or 12.2% of revenues in 2023. For the year, 6% growth in revenue was not sufficient to offset higher direct costs and SG&A expenses, resulting in an adjusted EBITDA decline compared with full year 2023. Despite the decline in adjusted EBITDA, net income grew primarily because of a lower tax rate and FX remeasurement gains compared with FX remeasurement losses in the prior year. In 2024, we had a tax rate of 20.2%, which compared with 23.3% in 2023. The decrease was largely due to favorable discrete tax adjustments related to equity compensation. Conversely, bad debt for the year of 1.4% of revenues was higher than our average bad debt of approximately 0.8% of revenues over the prior five years. The increase was driven in part by $12.8 million of bad debt in the fourth quarter related to one completed matter in our economic consulting segment. Even letting these items, though, both our full year and fourth quarter 2024 results were below our expectations. Year-over-year revenue growth, that was…

Thank you. We will now begin the question and answer session. To ask a question, if you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, and the first question will come from Andrew Nicholas with William Blair. Please go ahead.

Hi. Good morning. Thanks for taking my question. I wanted to start on that kind of consulting outlook. Steven, you provided or, you know, pointed us to the 2014 year as a potential, you know, outsized impact or reference point? And I think you said $35 million. I'm just curious in terms of the guidance, is that similar to what you have embedded in the 2025 outlook and then relatedly, if you could talk about the potential impact from, you know, these actions or, you know, current developments on 2026 and kind of how this could potentially bleed into next year, if that's off.

Yeah. Look. As I said, thanks, Andrew. Look, I think it's very early days. The reason I use the $35 million number is to give you a dimensionalized because if we had said substantial, sometimes, you know, we have accountants, good accountants who think $350,000 is substantial. And $3.5 million is substantial, and $35 million is substantial. And I just want to give people an order of magnitude of what I thought this could be, and that was the comparability point and it just happened to be interestingly a comparable number. There's a huge amount of uncertainty around this number. It's really early stages. And how that number shows up, even if it was close, could be in very different ways. We track a lot of people. It could be in the cost of signing those people. If we lose people, it's the revenue you drop. And so, obviously, you know, we threw that number out, and we built in some sort of number akin to that, but we also, as Ajay always points out, have a range around our numbers to try to account for some of the variability around it. But yes, we didn't throw out a $35 million number and build $3 million into our budget for this year, into what we're giving you as guidance. Does that help a little bit, Andrew?

Yeah. That's helpful. I guess I think there was a comment about it potentially impacting the start of 2026 too. Could you touch on just maybe how that happens? Is it people that would potentially be leaving, you know, over the next couple of months and sticking around through the beginning of next year to finish off projects or just trying to figure out how much is isolated to 2025 and if 2026 can be, you know, a rebound year. All else considered.

It's too early to say. I think the reason we put that in there is because, you know, if people finish up work and then they leave later, then, you know, some of the effect wouldn't be seen in the earlier quarters this year, and it would show up in the beginning of next year. If people leave earlier, and it starts hitting right away, then you would be cycling it a year from now. It's so early days that we don't know. And therefore, we're just throwing that in. I think our current belief is that this is moving faster than more than slower, but we're trying to reflect some of the uncertainty here.

That help?

Yeah. That's helpful. Thank you. And then maybe just taking a step back on overall headcount growth plans in 2025. There's a lot of moving pieces here between, you know, the Compass Lexicon headwinds, you have recent headcount actions, but you've also announced a ton of senior-level hiring over the past several months. Can is there any way to frame how you're thinking about headcount growth in 2025 and maybe some of the puts and takes on how that develops throughout the year?

Yeah. Let me take a crack then, and then I'll let Ajay decide whether he's going to be more quantitative. I'm glad you raised this. Look, the reason we highlighted some of these headwinds is because they're significant and, you know, they add up to a lot. We are still a company that is focused on growth. We have a right to be focused on growth. Even in our econ practice, which is at the setback, we have a fabulous group of people in India. We have a fabulous group staying in this segment sub-segment in the US. We have a great group based out of Chicago. I mean, so we have lots of growth opportunities. So I suspect we will hire many more senior people than we will lose this year. We've had dislocations at different points in time. I can't remember a time in recent years that we haven't hired. Some years, it's many more senior people than we've lost. A few years, it's closer. So we do anticipate headcount growth even with some departures. I think for many of our businesses, a lot of that comes in the second half of the year just because of the natural hiring cycles. And I don't know whether we get more detail than that, but we have not turned into a, and notwithstanding the discipline actions we took or Compass Lexicon, we are expecting growth in headcount. Does that and because we are a growth company, even if you have setbacks, it's painful, but these are setbacks as opposed to fundamentally changing the fundamentals. Does that help, Andrew?

Definitely. And maybe if I could just squeeze one more in on the M&A side. I mean, it sounds like there were some headwinds on some projects falling off in the fourth quarter, but there is some optimism for that to pick up as the year continues. Can you just speak to M&A trends as a whole and maybe any color on kind of large-scale M&A versus middle market M&A from what you're seeing in your businesses? Thanks again.

Look. I think there's a lot of uncertainty about anything that has to do with potential government policies. Right? I think the general trust is that people expect M&A to pick up, and then the question is, of course, answer. Did I trust GroupMe on those? But, Ajay, you want to elaborate on that? And we are seeing some of it. That's all. Did that help, Andrew?

Yes. Thank you. Thank you.

The next question will come from Tobey Sommer with Truist. Please go ahead.

Thanks. Within the competition practice, is there any particular industry vertical that's being impacted more than another or is just sort of a subset of people across different industries? And what does if you could give us your pitch for sort of the network effect of perhaps having the other segments resident in FTI that you would convey to an economist you were recruiting?

Okay. That will be two different levels of question. So first one was no. And I don't think there's particular industries. I mean, this is driven by an individual, and I think the comments read between the people who he's been able to recruit, his relationship with those individuals, I think, is the main common thread is what I would say. And let me be clear, we have well, this is a hit. It's a sign of how strong our Compass Lexicon business is that the people who are not leaving are just a fabulous group of people. So I still think we cover as far as I know right now, industries and we have a leading IO, I Dallas Carleton is the leading IO economist in the world or at least in the US, and Jorge and his colleagues in Europe and so forth. So this is a hit. It's a hit a slice that's been taken out, and I think the common theme is some personal connections. Look, I think the reason economists join us is a couple different things. One is just a terrific group of people it has working behind them, can help them become more effective. And we hire PhD students, A+ PhD students who don't want to become academics. And they get trained in what is required to do antitrust clearance. And it used to be that the academics relied on their graduate students. And as having had a son who was a graduate student, I love my son, but performance can be variable. You know? Once you get them in, you train them. You know, they become incredibly effective. The other thing that Compass Lexicon has to distinguish itself on is really having rigorous academic academics who these are folks who the origins of this are people who are scholars who really dove deep into figuring out what's really going on and therefore wrote insightful pieces. Many of them originally weren't so good testifiers because they knew how to explain it in math symbols that didn't actually work for judges and juries. And they had to learn how to talk to a jury, but these were rigorous scholars who got that discipline and insight to complex problems, and that's the origins of Compass Lexicon. That's why we recruit people. And so in Danfochell, you know, has historically not recently been focused on the competition in the US. Dan, because of these developments over the last few weeks, has started to recruit people in this area. And, you know, we I think we signed up in the last month five academic affiliates. Maybe only a few of them. Mollie's mentioning waving at me. Only a few of them are on the website. The terrific academics respect, the rigor and discipline and integrity of Compass Lexicon and so when we approach the right people, Dan does. We get receptive audiences. Does that help, Tobey?

It does. Thank you. Was curious if you could comment on the and takes of the administration change on various end markets. I know it's a fluid situation and its early days, but maybe you have some observations already you could share with us.

Yeah. I think if we have another four hours, we could go through that, and you still probably wouldn't know for sure at the end of the four hours. It's my problem, Tobey. Obviously, we're looking at it hard. Look, I think over any extended period of time, my experience is people overuse my wife's mid and best term, hang out about administration changes. You know, if you have the right set of people, there is a need. And you have to shift with the market, but it doesn't affect any multiyear growth thing. Can a near-term regulation change affect the sub part of our business significantly in the near time? It can be. And, you know, so you monitor those things and you have to figure out how you shift resources and deal with it. And so we're deep into that. Like most people right now, we're actually that's a third order comp of regulations when the regulations aren't yet fully implemented, how deep they are, cascading you know, the specifics around them aren't and, you know, there's changes going on right now. So we're into it, but for me to predict exactly how that's going to be on this call, I think, is premature at this point. It's a great question and we are focused on it. And as we have great wisdom on that, I suspect we will share it, but that's not where we are today. Does that at least talk to your question?

It does. I wanted to ask one model question if I could. Within the revenue guidance, what sort of assumption may there be embedded for headcount growth billable headcount growth in 2025?

Tobey, we do expect headcount growth in 2025. But we have headcount reductions of 360 folks between Q4 and Q1, we're, you know, aggressively hiring talented folks as they become available, have the campus recruitment net, and then the Compass Lexicon competition piece you heard about. Net of all that, do expect reasonable headcount growth.

Thank you, Tobey.

Thank you.

The next question will come from James Yaro with Goldman Sachs. Please go ahead.

Good morning and thanks for taking my questions. Steven, last quarter you talked about a more challenging demand backdrop for consulting services broadly. I think your comments suggested that that persists. But, you know, we're three months further in. Any high-level comments you could offer on that in terms of which products and geographies you're seeing that and perhaps any additional color you might have on what the drivers are there. And then, I guess, finally, any early signs of that, you know, improving at all?

Yeah. Look. I think as I tried to allude to a little bit on my script, I think it's a combination of market forces. There have been some idiosyncratic forces like I think our strategy, Rack happened to have a bunch of jobs roll off and we haven't yet got them back, and that's more idiosyncratic to us. But there are different types of market forces that affected us. You know, our transactions practices were and M&A practices were slower in the fourth quarter. We think that was a market force. There are some economic forces. I mean, we've expanded a lot in different economies in EMEA, I'd say we've expanded our services in the UK, and I think most professional services firms, all the data I've seen has said had a slow year in the UK for almost all of their services. So you know, we have some market forces I'm not sure. You know, we have some sense that some of these will turn around in this year. I mean, I don't think we think that the M&A market will stay slow, and I think there's some early signs of green shoots on that. You know, my sense is that I've hesitated to over talk about market forces because my experience is that they do have short-term effects, but if you are a leading firm, you tend to outperform the markets. And so that's what I like us to focus on. And so, you know, I think our leaders believe we're going to have growth in our businesses not just because market forces come back, but because we're doing the right things in their business and because we're attracting great talent. So we are not expecting the negative fourth quarter growth to be persisting through this year for I mean, I think we have solid growth forecasts for every one of their businesses except for the one that's affected by the Compass dislocations. For everyone notwithstanding we think the market forces are. And I think that's reflecting of the power and the confidence we have in our businesses. But we're hoping for some market tailwinds in addition. But right now, we're actually making the solid growth forecast based on what we believe we can do. Does that help, James?

Super helpful, Steven. Thank you. Maybe just on the FLC business, you talked about a pickup of demand for disputes and investigations. Any additional color you could provide there in terms of what gives you the confidence across product and geography?

Look. I think we have, over the last few years, you know, just the US particularly the US team has just come into its own. And we have a great group of leaders in that practice, and you know, the practice always had great talent. I think we have some leaders who are a little more commercial too. You can have great people who are, you know, focused on doing a good job, but occasionally, you have to tell the clients that you're doing a good job. And I think as a result, you know, our US practice just keeps winning bigger and bigger jobs, and the market gets sometimes despite ourselves gets to know that. Now even though many of those jobs are actually very confidential. I think we've also got the right places where we're investing abroad. You know, some places abroad, we don't have the breadth of capability, but we have really good people who are more focused investing behind. And so I feel pretty good about that business. Now that is a business that some would say could be affected by regulatory changes in the US, and we'll see. But I think what I focus on is the capability of our teams, and I gotta tell you, I've never been as excited about that business as I am today. Does that help, James?

That's superb. Thanks, Steven. Last one just on Econ Consulting. Just a more in the weeds one. Did any of the departures affect the fourth quarter revenue for econ consulting, or is that all on the come in the 2025 guide?

None of the departures affected the fourth quarter. And none of them, to my knowledge, happened. They're all first-quarter departures.

Okay. Great. Alright. Thanks a lot.

Alright. Listen. Thank you all for your support over the time. This is the most muted guidance we've ever given. It's because there's a ton of headwinds we're here. We're here. Like, none of that challenges the fundamental strength that I think we've created in this company. And we look forward to getting back on that track through the year and into next year, but we'll keep you informed on how we do that. Thanks very much for your time.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.