Good morning, everyone, and welcome to the FTI Consulting, Inc. First Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please send to a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your telephone keypad. To withdraw your questions, you may press star and two. Please note that this event is being recorded. At this time, I would like to turn the conference call over to Mollie Hawkes, Head of Investor Relations. Please go ahead.

Good morning. Welcome to the FTI Consulting, Inc. conference call to discuss the company's first quarter 2025 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 the Private Securities Litigation Reform Act. This includes the company's outlook and expectations for the full year 2025 based on management's current beliefs and expectations. These forward-looking statements contain risks, uncertainties, assumptions, estimates, and other factors that could cause actual results to differ materially from such statements. 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 annual report on Form 10-K for the year ended 12/31/2024 or our quarterly reports on Form 10-Q 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 of the date of this earnings call and will not be updated. FTI Consulting assumes no obligation to update these forward-looking statements whether as a result of new information, future events, or otherwise, except as required by applicable law. During the call, we will discuss certain non-GAAP financial measures. A discussion of any non-GAAP financial measures addressed on this call and reconciliations to the most directly comparable GAAP measures are included in the press release and the accompanying financial tables that we issued this morning. 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 upgraded to include our first-quarter 2025 results. 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 our President and Chief Executive Officer, Steven Gunby.

Thank you, Mollie. Welcome, everyone. Thank you all for joining us today. As I hope you saw this morning, we reported a strong first quarter. The first quarter did benefit, as Ajay will detail, from some one-time items. But even adjusting for anything one might think of as anomalous, it was a solid quarter. So as we all know, there are lots of puts and takes in the world right now, lots of uncertainty. The start of this year is overall quite consistent with what our expectations were in February when we gave you guidance for the year. Ajay will, as usual, go through the details of this quarter in his typical structured fashion. Given the complexity of the world today, with all the various theories of where the markets and client needs might go, I thought we might go a little deeper than I normally do. On the individual businesses. And share some qualitative observations both on the performances of each of those businesses so far this year, but also on some of the different theories of what their outlooks could be. So I will be a little longer than usual. I hope you will forgive me for that. I want to start with FLC, this quarter. I hope you saw just how fabulous a quarter FLC had. I think the EBITDA this quarter was roughly comparable to what we probably average for half a year for that business over the last few years. The driver of those results is that the teams there have been winning and delivering on some incredibly major roles. I would love to talk about a lot of the specifics. Unfortunately, many of those assignments are confidential due to the nature of the work. The roles the teams are playing are important, critical, powerful,…

I believe the data of the last ten years have turned that theory into a proven proposition. We will maintain that commitment. I firmly believe this company will continue to deliver a future that is extraordinarily bright. With that, let me turn the call over to Ajay to review the details of the quarter. Thank you, Steven. Good morning, everybody. In my prepared remarks, I will take you through our company-wide and segment results for the quarter. First quarter of 2025 revenues of $898.3 million decreased $30.3 million, or 3.3%, compared to the first quarter of last year. Sequentially, compared to Q4 of last year, our revenues were up slightly. GAAP earnings per share of $1.74 compared to $2.23 in the prior year quarter. Adjusted EPS of $2.29 compared to $2.23 in the prior year quarter. The difference between our GAAP and adjusted EPS for the quarter reflects a $25.3 million first quarter special charge related to severance and other employee-related costs, which reduced GAAP EPS by 55¢. Net income of $61.8 million compared to $80 million in the prior year quarter. The decrease in net income was largely driven by lower revenues and the special charge, which was partially offset by a decrease in SG&A and direct costs. Direct costs of $608.9 million compared to $626 million in the prior year quarter. The decrease in direct costs was primarily due to lower variable compensation and contractor costs, which was partially offset by higher benefits and salaries. SG&A of $184.3 million, or 20.5% of revenues, compared to SG&A of $201.9 million, or 21.7% of revenues, in the first quarter of 2024. The decrease in SG&A was primarily due to a benefit from litigation settlements in Q1 and lower bad debt. First-quarter 2025 adjusted EBITDA of $115.2 million, or 12.8% of…

Ladies and gentlemen, at this time, we'll begin the question-and-answer session. To ask a question, you may press star and then one on your telephone keypad. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the key. To withdraw your questions, you may press star and two. Once again, that is star and then one to join the question queue. Our first question today comes from James Yaro from Goldman Sachs. Please go ahead with your question.

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? I know it's early, but just an early read there.

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?

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.

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?

I would agree with that. Does that help, James?

Excellent. 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?

It is still applicable, James, and we will give you an update at the second quarter earnings call.

Excellent. Thank you so much.

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

Thank you. I'd like to start on the economic segment. Now that more time has passed, can you size the revenue annualized revenue headwind from the departures and maybe give us a framework for what you think the long-term margin profile of the business looks like because there clearly are some moving parts that are difficult to assess from the outside.

Let me talk conceptually about the margin, and then I'll let Ajay decide whether we give more details on the revenue side of the stuff. Look, the business is going to have a major impact on the EBITDA. There's no question about it. I speculated certain numbers last time. I think if anything, the effect is gonna be higher. Not because the the number of departures is radically different than we were speculating against last time, and maybe a little bit because some of the retention programs that we put in place or for the people we kept, you know, there's a bit there that we may spend a little bit more than I think we expected on that. But, actually, also because of a good thing, which was that we've attracted a lot of new affiliates. And, you know, that is a great thing in the medium term. But almost always in this company, new strong people cost you money in the first year. You know, either they are new in their career and they are up-and-coming, and we're helping to attract them with a view that the hockey stick is pretty substantial over the next few years. But even with people who are established testifiers bringing theoretically big books of business, sometimes the book of business doesn't transfer immediately for a variety of reasons. And so, you know, you spend a fair amount of money, these forgivable loans that Ajay referred to. And you spend the beginning now, and some of the revenue comes later. And so this is why we're underscoring this. I mean, know, we're not underscoring this because we think this is life-threatening to the business. To the contrary, I think this is the best group of economists in the world. And I think the people we're attracting just reinforces that. But the financial hit to the bottom line is substantial. I think last time I speculated it could be $35 million versus last year. I think the number is likely to be higher than that. I don't think we have so much detail that we can get more specific than that. Okay. So that's on the bottom line impact.

I don't know how much detail we give on the revenue. So, Tobey, you already see the impact in revenue this quarter. So you already see that. In terms of the cost side, in the short term, the next few quarters, have been very explicit on the incremental, at least, forgivable loans given through this quarter. And I said they're mostly at the end of the quarter. We've said the amortization happens over three to six years. You can average it and calculate the quarterly impact. So you have the revenue, that's the incremental piece is the forgivable loans. You already saw the headcount coming off in the first quarter with the ensuing savings there. So you have all the piece parts. Already. And our guidance that is in place has a range of outcomes that Steve mentioned as already incorporated in that range. Okay.

So, the new hires, sometimes the matters or the revenue comes later. Does the first quarter capture all of the revenue that sort of was attached to the departing employees?

Sorry for any confusion. Let's be clear about that. Most of the departing people departed towards the end of the quarter. So, no, it didn't. I mean, now we also had market slowdowns and other factors in that first quarter, but no. The revenue impact of departing employees really starts to show up more in the second, third quarter. But the first quarter also had some other headwinds in it. So it's hard to know delta. Right? And further, there's obviously a disrupted practice. So to that extent, yes, as I said explicitly in my remarks, it's a combination of factors. Market departures, which as Steve said happened towards the end, but also the disruption in the practice.

Thank you. Clearly, the new hires come over time.

Thank you. Could you talk about trends in your healthcare business within FLC? What did you experience there in the quarter, and what's the outlook for the year?

Yeah, it's been good. I mean, we have good practice with a couple of different healthcare practices, performance improvement within CF and then the more regulatory-oriented one in FLC. It's been good. Both had good businesses this quarter. I don't know what else you want to say about that, Ajay.

Yes, and particularly so, Tobey, because last year, they were somewhat weak. So the year-over-year comparisons show up more, which is what we've talked about.

And then if I could ask a follow-up on the regulatory question. You can't predict, what the changes will be and what the effects will be going forward. But could you size for us the parts of the business or maybe proportion of business that is regulator-led investigations and the like?

Oh, that's a difficult one to answer. At the end of the day, regulators are involved in every investigation, so there's a regulatory aspect to it. But whether it is the federal or the state regulation that would take precedence, is speculative. Of course, we're only talking about the United States. There are also regulators in Europe and other geographies. So that's one is really an impossible one for me to answer. All I can tell you is our practitioners, whilst we got a bit anticipatory for obvious reasons, our practitioners remain very positive in the business.

Okay. Last one for me. Ajay, could you give us some color on the headcount actions? Maybe color on the distribution of segments, geographies, split between back office versus fee generators, that kind of thing? Thank you.

Sure, sure, sure. Look, it's all laid out in the 10-Q in terms of the breakdown by segment. And I don't remember all those numbers off the top of my head. But what I will tell you, it's about 400 plus folks between, you know, Q4 and Q1. It is spread across all levels. In fact, remarkably, proportional to the mix we have in buildable side, it's remarkably evenly spread, the same proportions as we have seniors versus juniors. Perhaps a little bit more weighted on the senior side. And a smaller on the non-billable side. And it's across the globe. As you know, we have most of our people in the United States and EMEA. It's a little bit more in EMEA than in the United States. But otherwise, it's across the globe.

Our next question comes from Andrew Nicholas from William Blair. Please go ahead with your question.

Hi, good morning. Thank you for taking my question. I wanted to ask first on the restructuring business. Sounds like you've seen a little bit of incremental stress in the system the past couple weeks. The question I want to ask is just around kind of the bifurcation in that market between liability management and your traditional Chapter 11 bankruptcy activity. Is there any shift from what you can tell in preference for one route or the other right now? And understanding that it's difficult to predict the future, do you think the next couple months or quarters in this specific environment might skew one way versus the other relative to what you've seen in a couple of years?

So there's quite a few questions embedded in that one. I found an interesting statistic the other day that what S&P reported that last quarter, 42% of the bankruptcies were repeat bankruptcies. So liability management doesn't always work. In fact, that creates a market in the future for restructuring. Well, we hope our clients do well, but typically taking on more debt if you already have high leverage with unsecured positions doesn't necessarily get you out of trouble. And we can see evidence of that already. Where the fault line is running through working capital with these stretched assets, and because the working capital is getting increased with the tariffs and you don't get realized value. So how and if you're extremely over-levered to begin with, how that can be solved through liability management beats me. So this is a serious challenge that is creating a demand, and we bring a whole slew of services from cost-cutting to changing supply channels to transactions and, in the ultimate analysis, restructuring to the equation.

That's helpful. Thank you. And then kind of going back to Economic Consulting, Ajay, you cited some statistics on the HSR kind of deal counts. And I apologize if you outlined this already. But just to clarify, is that primarily a regulatory-driven slowdown, or are there other kind of macro dynamics that already show up in that figure? Just trying to get a sense for overall backdrop excluding some of the Compass Lexicon-specific headwinds.

No, no, no. The biggest backdrop is uncertainty. It's people freeze when they don't know, and it's the tariffs more than the regulatory. People freeze when they don't know which way things are going to come down. And that shows up in M&A. At least that's our supposition.

Great. And then maybe one last question. Obviously, dealing with some of the departures in Compass Lexicon, there's specific headwinds within that segment. But I'm curious, are there any kind of ripple effects that you expect from some of the lost revenue there to other parts of your business? I know in the past you've talked about having some success driving additional cross-sell between Econ and Technology or CFR and Stratcom. I'm just kind of curious outside of what's isolated to that segment, if there's anything that you'd say there.

Thank you. So two things. First, those range of outcomes that one can reasonably foresee related to either Economic Consulting, Compass specifically or second, third order are in our guidance. So that's number one. Number two, this could be unique. There is no such expectation of this being cross-border, but there could be some, but I wouldn't read too much into it.

Again, there are no other questions. I just want to say thank you for your continued attention. Look, as we all know, the world is filled with uncertainty. And as we talked about individual businesses of ours can be affected by those uncertainties negatively or positively. You know, I'll just come back to the general point. There's a unique constellation of uncertainties today. But the notion that our business has surged and soared through periods of uncertainty in the past is the thing I would come back to. And in fact, our company exists to help companies, in the face of the deepest uncertainty. Does it mean you can't have a pause for a while or a big effect on one business or another and you can always have cost issues as you're stabilizing a business that has some departures and stuff like that. Nothing about the current uncertainty changes my fundamental conviction that this company is closer to the beginning of its journey than the end. So we look forward to being on that journey with all of you. Thank you very much.

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.