FTI Consulting, Inc.

Good day and welcome to the FTI Consulting fourth quarter and full year 2022 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. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ms. Molly Hawks, Head of Investor Relations. Please go ahead, ma'am.

Good morning. Welcome to the FDI Consulting Conference Call to discuss the company's fourth quarter and full year 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 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.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 December 31, 2022, 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 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 fourth quarter and full year 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've said, are available on the investor relations section of our website. With these formalities out of the way, I'm joined today by Stephen Gumby, 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, and welcome everyone, and thank each of you for joining us this morning. I'm sure most of you have seen this morning's press release. And if you have, you've noted that 2022 was a year in which we once again reported record revenue, record adjusted EBITDA, and record adjusted EPS. So a terrific 2022. With your permission, however, I'd like to not talk too much about 2022 and rather leave it to Ajay to go through the year in detail. And instead, allow me to focus on something that I find even more important than the 2022 results, which is the multi-year trajectory this company has been on and which I believe is positioned to stay on. The critical point to me is that though 2022 is a good year, it's not a one-off good year. If you look at the last five years, we have averaged, averaged double-digit revenue growth. organically. We have also done a couple of terrific tuck-in acquisitions during that period, but even apart from those acquisitions, we've averaged double-digit revenue growth. And in terms of adjusted EPS growth, we have had adjusted EPS growth not for a year or two, but now for eight consecutive years. I think some of you have heard me talk a lot about the stair-step nature of this business, that we never grow in straight lines. Never in our individual businesses, certainly not in sub-businesses or individual geographies, but actually also for the company as a whole. And some years in that eight had a lot of revenue or EPS growth, and some years had just a little bit. But when you've had eight consecutive years of a mixture of a lot and a little, it adds up. It adds up to considerably more than a little. In fact, in our case, it adds up to more than a quadrupling of adjusted EPS during that period. To me, far more important than any given year's results, it's the multi-year performance that I focus on and our teams focus on. To me, that multi-year performance is a reflection of what our teams have turned this company into, an institution that is winning in both of the marketplaces of matter. The first is the one we always think about, the marketplace of clients, of winning and delivering great work. But we're also winning in the second one, which is the marketplace of talent, of attracting great talent, supporting that talent, seeing it develop into people who are committed and able to deliver that great work. By winning in both of those marketplaces and having people who are focused on winning in both of those marketplaces, we have, in my opinion, turned this company into one that has the ability and a proven ability to thrive, yes, in good times, but also through bad times. I've made some of those observations before, and a couple folks said it would be great if I could talk to some of the questions that naturally follow those observations, which is dive down a little bit deeper. What is actually allowing that sort of sustained multi-year success? And second, why am I and are we confident that this sort of success is durable and extendable going forward? So let me take a crack at both of those questions. Starting with the question of what has allowed success, I think all of us know that businesses are incredibly complicated. Behind any success, you can cite a million factors or details, and I can't address all those. Let me highlight two things that I think are incredibly fundamental, perhaps the most fundamental things that have allowed us to prosper in this way over the multi-year period. The first is that I believe over the last years, we have built a management team and now increasingly an entire organization that is committed irrespective of market headwinds and through the zigs and zags that happen in this industry, committed through all of that to continually and confidently bet. Bet where we have a right to win and invest and support the talent who are passionate about those positions. That sounds like an extraordinarily basic concept and in some ways it is. But when I observe real life, the sustained commitment to those values, not just in good times but also in bad times, turns out to be perhaps less common than one might think. And making that sustained commitment turns out to be powerful. Let me give a couple of examples to our company. Corp Fin, in 2022, which Ajay will talk about, our restructuring practice grew revenues 14% year over year. Sounds pretty good, and based on those results, one could assume, oh, it must have been a good year for the restructuring markets. Interestingly enough, the answer turns out to be no. It was not a great year for the market as a whole. In 2022, according to DebtWire, North America had the lowest number of bankruptcy filings, over $50 million, since 2014, a decline of 13% compared to 2021 and less than half of what we saw in 2020. Yet we grew 14%.