FTI Consulting, Inc.

Welcome to the FTI Consulting second quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal 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 question, please press star, then two. Please note that this event is being recorded, and I would now like to turn the conference over to Molly Hawks, Vice President of Investor Relations. Please go ahead.

Good morning. Welcome to the FTI Consulting Conference Call to discuss the company's second 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 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.sticonsulting.com, as well as other disclosures under the headings of Risk Factors and Forward-Looking Information in our quarterly report on Form 10-Q for the quarter ended June 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 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 delivered share, adjusted net income, adjusted EBITDA margin, and free cash flow. For discussion of fees and other non-GAAP financial measures, as well as our other 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 includes 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 second quarter 2022 results. Of note, during today's presentation, 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 they have historically. With these formalities out of the way, I'm joined today by Stephen Dunby, our President and Chief Executive Officer, and Ajay Sabharwal, our Chief Financial Officer. At this time, I will turn the call over to our President and Chief Executive Officer, Steve Gumby.

Thank you, Molly. Welcome, everyone, and thank you all for joining us this morning. This quarter, like all quarters, there are a lot of puts and takes in our results at the disaggregated levels, the segments, the regions, the subregions. So I will, as usual, let Ajay talk to those in some detail. But let me talk to the macro level. At the macro level, the results were, for the first time in a while, a bit below my expectations. Important, however, I want to underscore that that shortfall was primarily due to the sort of quarterly noise that our business is often subject to, whether it's revenue deferrals, FX remeasurement gains or losses, taxes, the timing or success fees, et cetera. So I've looked into this extensively, and the bottom line for me about this quarter is nothing about this quarter changes my sense or our sense of the prospects for the medium term and the long term or for this year. So as Ajay will talk about, we are reaffirming our guidance for this year. So I'll leave the rest of the details in the quarter then to Ajay. And for the rest of my time, perhaps instead of talking to the quarter, we turn to some of the general themes that we've talked about before, which is the commitment we are making to continue to invest behind the strong positions we have and the numerous strong opportunities that we see. The investments this quarter are, for the most part, in the same areas that our investments have typically been, which is, as you know, senior headcount and junior headcount, and I'll talk to that. But in this quarter, you'll notice, in addition, we have invested heavily in SG&A in a way that we haven't over the last several years. So I want to give you a flavor of that as well. Let me start with the senior headcount and junior headcount. With respect to senior headcount, I'm hoping you saw this quarter that we announced the hiring of 33 new senior professionals at the MD and SMD levels, which is on average over 50% above the even impressive levels that we've been achieving the last few years. This quarter, we had particular success at the MD level. We were announced three times as many hires as we had been in the second quarter of last year. Our success in these hiring efforts is critical because, as we've discussed several times, even with all the promotions we are making, reaching the sort of bold aspirations that I have and our teams have requires ongoing success in attracting great senior people laterally as well. And so I was very gratified to see yet another powerful quarter in that hiring. Importantly, that hiring is happening across multiple geographies. As we've discussed, this year we are in particular investing heavily in a number of areas where we historically weren't as strong in, like France, Germany, Italy, Netherlands, and the UAE, all of which reflect our strong commitment to deepen our penetration in the MIA region, as well as the strength of the leadership we now have there that we can invest behind. But equally important, we are continuing to have great opportunities to hire strong people elsewhere. Among those numbers for this quarter, we hired great senior professionals in the United States, Australia, Mexico, China, and other places, all of which reflect the strength of our brand among the leading professionals in each of those markets and our belief that we have opportunities in every segment and every geography. So a lot of senior hiring was one of the investment areas this quarter. Behind the senior investments, we also hired less tenured people. People, junior people who can grow and develop in their own right to become senior people and people who can support the senior people today. Overall, our headcount is up just under 10%, which is generally in line with our aspirations. And on top of that, this fall, we're going to welcome the largest campus hire group that we've had by far, reflecting the commitment we've made and the success we've had in building our presence on campus. and our commitment to growing that most core source of organic growth, which is hiring great people at the most junior levels and then developing them up through the ranks. So a good part of our investment this quarter was in the same form as we've had in the past. Great senior hires, great junior hires, great people behind them. But what's a little different about this quarter than some recent quarters is we've also made major investments in FT&A. Let me go into that for a bit. As we discussed, I think we did a terrific job during COVID of maintaining connectivity remotely. We put in place tools to help like Teams and Zoom. But more important than those tools and processes, our people made incredible efforts to support their clients in difficult times and remain connected emotionally to each other during the height of COVID. So I think we did a great job. But in my experience, any high-powered professional services firm that works on a sort of high-stakes complex matter that we do, you need, when you can, to invest in face-to-face connection among your people. I don't think we're ever going to go back to the old days where everybody's in the office or at a client site five days a week or sometimes seven days a week. But nor do I think a pure virtual reality makes sense for a company like this, which deals with sets of issues that are major and stakes that are high. Given that, and since we've had so little face-to-face contact in the last few years, this year we are consciously making major efforts to reestablish that connectivity. And that showed up particularly this quarter. Let me give you a few examples. On our last call, we talked about how in April we hosted the first all-SMD meeting that we've had in almost three years and how energizing that was. What I didn't mention was how enthusiastic the attendance was for that. We have a person on our team here, Miko, who arranges everything for that meeting and all the hotel rooms. She never plans wrong, and we ended up running out of hotel space. And she and we had to scramble and let rooms at nearby hotels have space for everyone. So it was a major investment. It's an example. We also made investments like this in a disaggregated way by segment, by subsegment and region throughout the quarter. In Corp Fin, our teams in TMT, XCI Capital Advisors, and Real Estate each hosted major in-person meetings, some of them gathering the entire global team. Our tech business development team hosted their first in-person sales kickoff in over two years. To me, and I'm sure many of you, it's ridiculous to think about having a sales kickoff only once every three years. There's so much motivation that comes from an in-person meeting. When salespeople get together, not only share best practices, but share energy. And though some of that can be done virtually, nothing can replace the energy level you get when you have it in person. So I was pleased we were able to return to that sort of event this quarter. And similarly, at Econ, FLC tech teams in EMEA and Australia each hosted a way day for professionals. And that's at the segment and region level. In addition, we brought back in person talent development training programs. For example, we've historically hosted annual milestone programs for newly hired and promoted professionals, and we've done that live, face-to-face to enhance connectivity in our firm. We were not able to do that during COVID, and I was pleased we were able to bring them back in person this year. So the FG&A this quarter reflects in particular our commitment to increase in-person connectivity, but it also reflects some other things as well, including more travel to in-person client meetings and proposals, as they will talk, hire airfares and so forth, but also more investment in infrastructure. You can't hire all the people we hired this quarter without recruiters to do the actual hiring. And in particular, when you have new geographies, you need those recruiting professionals to be able to speak the local language. So in many of these new geographies, we made significant investment, and not just in recruiters. We invested in finance and marketing and legal professionals. We need to support those businesses. So we invested in travel. in connectivity, but also in infrastructure. Those major SD&A expenses are obviously, in the classic accounting sense, expensive. But I also believe they are appropriately thought of as investments. They are critical parts of making sure we continue to attract great people, and then once we do, we support their development. and we support and maintain and build upon the culture in this firm that has led to the success of this firm over the last years, that has turned this firm into one that is today ever more powerfully able to deliver for each other in terms of our professional development, but most critically, for our clients as well. And behind those investments is a deeper conviction that we've talked about a number of times, which is as much success as we have had, I believe we are in the early innings. There are powerful market opportunities in front of every segment and every geography. And there are always new adjacencies to attack. The most critical gating factor for our growth is not the market. It is finding great people, retaining them, supporting their development, supporting the best professionals so they can become the best versions of themselves. As long as we do that, and along with that support process, the continued conviction of the right attitudes and the right capabilities, the commitment to clients first and foremost, we will continue to be able to seize those opportunities as we find them and as they arise. And if we do, the opportunities for our people will be as bright as they have ever been, but also the power for our clients will continue to grow and shine through into the marketplace. And through both of those, the results for you, our shareholders, will continue to be terrific. So with that in mind, let me turn over the page to Ajay. Ajay.